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Principle of

maximum
social
advantage

meaning
DALTON ; The best system

of public finance is that


which secures the
maximum social
advantage from
operations of its conduct.

Assumptions :
Taxes are the major source of government

revenue
The law od diminishing marginal social
advantage applies to the public expenditure
The taxes are subject to increasing marginal
social disutility

Conditions :
The social benefit from the rupee spent on

public expenditure should be equal to the


sacrifice from the last rupee collected by the
way of tax
Public expenditure should be distributed
among various schemes that benefit of last
rupee spent on every scheme should be equal
Taxation should be levied in different
directions such that sacrifice or disutility from
last rupee collected from every direction
should be equal

Dalton conditions of maximum


social advantage
Public expenditure in every direction should

be carried out just so far that the advantage


to the community..is just counter balanced
by the disadvantage of a corresponding small
increase in taxations

Marginal Social Sacrifice (MSS)


Marginal Social Sacrifice (MSS) refers to that

amount of social sacrifice undergone by public


due to the imposition of an additional unit of
tax.
Every unit of tax imposed by the government
taxes result in loss of utility. that the
additional burden (marginal sacrifice)
resulting from additional units of taxation
goes on increasing i.e. the total social sacrifice
increases at an increasing rate.

Marginal Social Benefit (MSB)

While imposition of tax puts burden on the


people, public expenditure confers benefits.
The benefit conferred on the society, by an
additional unit of public expenditure is known
as Marginal Social Benefit (MSB).
Just as the marginal utility from a commodity
to a consumer declines as more and more
units of the commodity are made available to
him, the social benefit from each additional
unit of public expenditure declines as more
and more units of public expenditure are
spent.

The Point of Maximum Social Advantage

Social advantage is maximized at the point


where marginal social sacrifice cuts the
marginal social benefits curve.
This is at the point P. At this point, the
marginal disutility or social sacrifice is equal
to the marginal utility or social benefit.
Beyond this point, the marginal disutility or
social sacrifice will be higher, and the
marginal utility or social benefit will be lower.

Pigou condition of maximum social


advantage
Expenditure should be pushed in a direction

upto the point at which satisfaction obtained


from the last shilling spent is equal to the
satisfaction lost in respect of the last shilling
paid as taxes to the government

Significance
INCREASE IN PRODUCTION : in order to

maximise the social benefit , there should be


such changes in the revenue and expenditure
of the government as could stimulate
production and could increase employment
and exports
1. such improvements are made in the
production technique as a result of which
production per worker goes up
2.such improvement should be made by the
means of which minimum wastage of
resources takes place

Equitable distribution of wealth : for this


purpose 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 where


there is peace 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 maximises
production and social welfare.
Future consideration : it Is the bounden duty
of the government to safeguard the interests
of the future generation also while utilising
the available natural resources in the
prersent.

Limitations :
Measurement of both sacrifice and benefit is

difficult
It is difficult to make an estimate of maximum
social advantage on the basis of future
advantages and present sacrifices.
It is difficult to estimate how much effect each
tax individually has on public
Collecting revenue through taxes creates
disutility
It is incorrect to assume that each tax
involves burden on the people.

Thank you