Hi friends, in today’s article we are going to know about the concept of principle of maximum social advantage. So let’s discuss in details.
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Principle of Maximum Social Advantage
The principle of maximum social advantage was first introduced by the British economist Huge Dalton. According to Huge Dalton that system of the public finance is the best which secures the maximum social advantage to the community.
The fiscal operation of the state should therefore be determined by the principle of MSA (Maximum social Advantage).
Assumption of Principle of Maximum Social Advantage
The Principle of MSA is based on the following assumptions –
- All taxes result in sacrifice and all public expenditure lead to benefit.
- Public revenue consist of only taxes and there is no other sources of income to the government.
- The government has no surplus or deficit budget but only a balanced budget.
Theory of Principle of Maximum Social Advantage
Taxation leads to some loss of purchasing power by the taxed people. This is the social sacrifice of the taxation. Similarly, the spending of the money by the state leads to gain of utility by those who are benefited by it. This is the social benefit of public expenditure.
State should continue with it’s fiscal operation so long as the social benefit exceeds the social sacrifice, therefore the community will be the net gainer. But the state should not proceed beyond the point where social sacrifice equals to the social benefit.
The net social advantage should be maximum only at the point where the social sacrifice equals the social benefit. Introducing of the concepts of marginal both sides, the state should secure maximum social advantage by equating the marginal social sacrifice with marginal social benefit.
The point of equality between the marginal social sacrifice and marginal social benefit is known as the Principle of maximum social advantage or the point of least aggregate social sacrifice.
In the above figure, MSS is the marginal social sacrifice curve sloping upward from left to right. This (MSS) rising curve indicates that the marginal social sacrifice goes on increasing with every additional dose of taxation.
MSB is the the marginal social benefit curve sloping downward from left to right. This (MSB) falling curve indicates that the marginal social benefit diminishes with every additional dose of public expenditure.
The two curve MSS and MSB intersect each other at point ‘P’. PM represent both marginal social benefit as well as marginal social sacrifice. Both are equal at point OM which represent the maximum social advantage.
Limitation of Principle of Maximum Social Advantage
The Principle of MSA is criticised on the following grounds –
- It is not possible in actual practice to measure the MSS ( Marginal social sacrifice) and MSB (Marginal social benefit) involved in the fiscal operations of the state.
- The law of equimarginal utility may be applicable to private expenditure but certainly not to public expenditure.
- All taxes doesn’t result in sacrifice and all public expenditure do not lead to benefit.
- Public revenue do not consist only of taxes and there is other sources of income also to the government.
- “The government has no surplus or deficit budget but only a balanced budget” is an invalid assumption.
Summing up – Despite off all the limitations the theory of maximum social advantage has been occupying an important place in economics as a leading theory of public finance.
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