To meet financial obligations, the government generates revenue sources through taxes and debts from the public and/or from foreign governments, and agencies. Thus. the science deals how to collect revenues and how to spend them to the most benefit to the citizens. The government has to ensure maximum social Advantage to its citizen. It should balance the social Advantage with social sacrifice.
The The Principle Of Maximum Social Advantage, undoubtedly, has great theoretical significant, but in practice the principle is criticized on the following grounds:
(1) Non Measurability of Social Sacrifice and Social Benefit. The major drawback of the principle is that in spite of its theoretical importance, it is actually possible to translate it into practice’ because the Maximum Social Sacrifice (MSS) and Maximum Social Benefits (MSB) cannot accurately be measured. When a tax is levied on a citizen, he suffers hardship on account of loss of purchasing power and likewise he enjoys benefit of social expenditure. But their accurate measurement is not possible. It, thus, reduced the utility of the principle.
(2) None-applicability to Borrowings. Loans raised from the public involve no sacrifice as the loans are to be repaid with interest after a specified period. So, this principle does not apply to such social expenditures which are financed through public debts.
(3) Non-applicability of Law of Equimarginal utility to Public Expenditure. The Equimarginal utility is applicable only to individual expenditure and not to public expenditure. An individual always seeks to get maximum utility out of his income by following the law of equimarginal utility. The state, on the other hand spends money not for an individual’s benefits but for the benefit of the society as a whole and therefore the public expenditure is guided by so many other social and political factors of a non-economic nature.
In such a condition, it is not possible to obtain maximum social advantage from the public expenditure.
(4) Role as Functional Finance. The role of public finance has greatly expanded in recent years. The concept of functional finance has more emerged. It is now used as an instrument of economic stabilization. It Involves surplus budgeting at the time of boom and deficit financing at the time of depression. The policy of functional finance permits no such consideration as the equalization of marginal social benefit with marginal social sacrifice.
(5) Assumes Static Condition. The theory assumes a static condition. But the real world conditions are not static. They are dynamic and ever-changing. The circumstances also vary from time to time.