Hugh Dalton Objective Tests To Estimate Social Advantage

Reason ↓ Why Dalton suggested Objective Tests ?

Dalton himself has realised the practical difficulties in the accurate measurement of social sacrifice and social benefit. Hence he has suggested some objective tests which are helpful in judging social advantage arising out of the financial operations of the state.

Objective Tests To Estimate Social Advanatge ↓

1. Maintenance of peace and order in the society

Existence of internal peace and security against foreign aggression are essential conditions for the smooth functioning and development of an economy. The state can ensure maximum advantage to public by diverting enough resources for such purposes.

2. Improvement in Production

An increase in national product generally leads to an increase in social benefit. Dalton suggests that all possible efforts should be taken by the state to increase national product so as to provide maximum social advantage. Resources may be spent for improving labour efficiency and increase national production. Incentives such as free medical and housing facilities, subsidised food should be provided to workers to improve their efficiency. Similarly producers should enjoy incentives such as subsidy, tax holiday for producing essential goods.

3. Improvement in Income Distribution

Public finance policies must promote equity in income distribution. Progressive taxation and government expenditure for the poor improves income distribution and promote social welfare. However, progressive taxation should not adversely affect desire to work, save and invest and harm production. Therefore, balance should be maintained between achieving equity in income distribution and promoting production.

4. Control of economic fluctuations

Economic fluctuations can also lead to many hardships for common man. Hence the state government should give top priority to the objective of maintaining economic stability. This would help in controlling price rise and inflation.

5. Full Emyloyment and Growth

The public policies relating to taxation and public expenditure must be framed in order to achieve full employment, especially in developed countries. Therefore, the public expenditure must be directed to productive purposes, so as to increase production, which in turn would increase employment. Also, the indirect taxes should be kept at the lower level, so as, to increase production and consumption, which in turn would help to generate more employment.

6. Stability of economic activity

A good system of public finance aims at reducing the fluctuations of income and employment. Public expenditure and taxation should be effectively used to reduce the impact of business cycles.

7. Provision for the future

The principle of maximum social advantage has both short-term and long-term aspects. The future social advantage on the society is as important as the present social advantage. Therefore, public finance operations must consider the long term effect on social advantage, while framing policies relating to public expenditure and taxation. It may be often necessary to make sacrifices in the present so as to secure a better future. Therefore, taxation policies should encourage savings, and investment.

Conclusion ↓

Maximum Social Advantage is the result of two contradictory and opposite forces. One tries to increase welfare through public expenditure and other tries to decrease it through taxation. Although the principle of maximum social advantage has more of theoretical significance, but it also provides guidelines to the government authorities to frame policies relating to public expenditure & taxation i.e. the government authorities should not unreasonably tax the people and at the same time must make effective use of government funds to generate maximum social advantage.