The Principle of Maximum Social Advantage
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The Principle of Maximum Social Advantage

The Principle of Maximum Social Advantage Just as an individual seeks to maximize his satisfaction or welfare by the use of his resources, similarly the State ought to maximize social advantage or benefit from the resources at its command.

The Principle of Maximum Social Advantage

Just as an individual seeks to maximize his satisfaction or welfare by the use of his resources, similarly the State ought to maximize social advantage or benefit from the resources at its command.

This is one principle for judging the desirability or otherwise of public finance operations. The public finance operations include both taxes and expenditures. Each such operation, whether it be the imposition of a tax or incurring of public expenditure, affects economic life of individuals or the community as a whole and we want to see that it promotes maximum social welfare. In order to determine whether the tax or the expenditure has proved to be of the optimum benefit we apply the Principle of Maximum Social Advantage. This has been called The Principle of Public Finance.

 

Limits of Public Expenditure and Taxation

 

 

Public finance operations involve series of transfers of purchasing power from some people to the government by means of taxation and from the government to the people by way of public expenditure. The tax payers make a sacrifice and public expenditure confers a benefit. The ideal system of public finance is one where the net benefit (i.e., the aggregate benefit minus sacrifice) is the maximum. This is what the principle of maximum social advantage means.

Public Expenditure: Maximum Social Welfare

 

How does he do it? By equalizing marginal utilities of the purchases he makes. The government should also do the same. Suppose it has to develop both agriculture and industry. It should spend its resources on each in such a manner that the marginal utility from the two is equal. If it finds that it has overspent in the development of industries and under-spent on agriculture, it should increase its expenditure on agriculture and decrease on industry so that the benefit from the two types of expenditure is equal. In this way, the public revenues will have been spent in the best possible manner from the social point of view, i.e., the social advantage will be maximized. In other words, the principle of maximum social advantage states that social marginal utility from each direction of public expenditure is equal. Obviously, if expenditure is pushed too far in any particular direction and the government has been miserly in some other desirable direction, the social advantage will be less than maximum. By acting on the law of substitution or equi-marginal returns, the social advantage from public expenditure can be maximized.

Distribution of Tax Burden: Minimum Social Sacrifice

 

We can lay down broadly that the tax system as a whole should conform to the various canons of taxation. Above all, it should be equitable and convenient. The broadest shoulders should be made to bear the heaviest burden. In that way, the burden on the community as a whole will be the minimum and the tax system as a whole will confer the maximum social advantage.

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