Principle of maximum social advantage meaning DALTON The

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Principle of maximum social advantage

Principle of maximum social advantage

meaning �DALTON ; The best system of public finance is that which secures the

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

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

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

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

�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

�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

�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

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

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

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

�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

�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

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

Thank you