Principle of Maximum Social Advantage

ii. Diminishing Marginal Social Benefits (MSB)

When the government undertakes public expenditure,the society gets utility or benefits.But as more and more benefits are provided to the people,its utility to them goes on diminishing.The MSB curve shows diminishing marginal social benefit.When the public expenditure increases from OM to OM1 the marginal social benefit decline from LM to L1M1.

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iii. Maximum Social Advantage

Since,the marginal social benefit goes on diminishing and marginal social benefit goes on diminishing and marginal social sacrifice goes on increasing with every additional change in expenditure and taxes respectively,the government goes on comparing marginal social sacrifice with marginal social benefit while it imposes taxes or make public expenditure.The conditions of maximum social advantages have been stated differently by different economists.

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Dalton’s Conditions of Maximum Social Advantage

According to Dalton,”Public expenditure in every direction shall be carries out just so far that the advantage to the community is just counter-balanced by the disadvantage of a corresponding small increase in taxations.”

The doctrine of maximum social benefit can be explained with the help of following figure:

MSS curve is showing marginal social sacrifice.It slopes upwards from left to right side.This menas that as a result of every increase in government expenditure,an increase in marginal social sacrifice takes place.In this diagram,point P is showing the position of maximum social advantage.At this point,government expenditure becomes equal to the government revenue as shown by ON.Further,MSS(Marginal Social Sacrifice) is equal to MSB(Marginal Social Benefit),as shown by OM.Point P shows the positions of equilibrium.

If the government imposes the taes which exceed ON,as shown by ON1 marginal social sacrifice will be greater than marginal social benefit(MSS>MSB).It will result into less social advantage.Similarly,if the government keeps its expenditure less than ON1 as shown by ON2 marginal social benefit will be greater than marginal social sacrifice,yet th eagrregate welfare of the society will be less.

Significance of Principle of Maximum Social Advantage

The practical significance of this doctrine depends upon how social welfare is to be measured.Only after determining it,we can make an estimate about the system giving maximum social benefit.Dalton has given following standards of measurement in this regard:

Increase in production

Maximum social benefit depends upon what effect public finance is making on the country’s production.In order to maximize the social benefit,such changes in the revenue and expenditure of the government should be made which could stimulate production and could increase employment and exports.According to Dalton,increase in production depends on three factors:

  1. Such improvements are made in the production  technique as result of which production per workers goes up
  2. Such improvements should be made in the production organization by which the minimum wastage of economic resources takes place.
  3. The nature of production shpuld be improved so as to yield maximum benefit to the society.

Equitable Distribution of Wealth

Maximum social benefit also depends upon the fact that there is a proper distribution of income in society.For it, the taxation process should be changed in such a way that more and more wealth is collected from the rich and the same is spent on providing more and more facilities to the poor.

Political stability

Social welfare and production efficiency are promoted when there is peance and order within and the country is protected against any external aggression.

Economic Stability

By pursuing an appropriate Fiscal Policy,Government should avoid economic fluctuations which is a pre-condition to achieve social welfare.

Full Employment

Every government aims at achieving the goal of full employment through its fiscal policy.Full employment maximizes production and social welfare.

Future Consideration

It is the bounden duty of the government to safeguard the interests of the future generation also while utilizing the available natural resources in the present.

Principle of Maximum Social Advantage

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