Principles of Public Expenditure | Canons of Public Expenditure

Modern Governments are accountable to the public for the  utilization of tax revenue. From this point of view, the Governments  should take utmost care in spending the public money in order to  expenditure obtain the maximum public welfare.It is possible only when the  Government devises its expenditure plans on the basis of certain principles of Public expenditure. Adam Smith has suggested four main principles of public expenditure.

However, there are certain other principles of public expenditure suggested  by other economists. The main Principles of public expenditure  are-

(1) Canon of Maximum Social Benefit: The principle of maximum social benefit implies that the Government should plan it’s expenditure in a manner as to promote the greatest good of the greatest number.

In the words of Pigou, “Expenditure- should be pushed in a directions, upto point at which satisfaction obtained from, the last shilling expended is equal to the satisfaction lost in respect of the last shilling upon by the Government to be paid by the people by way of revenue. This can be achieved by following the law of equi-marginal utility as it is done by an individual in arranging his expenditure. In following the Law, The Government should distribute its revenue among various beads -of expenditure -in such a manner that the marginal utilities of all the heads are equal.

The public expenditure should be for the common good of the public and not for the benefit of a particular individual or group. The main thrust of the Government in arranging the public expenditure should be to narrow down the inequalities in the society. For this purpose, the benefit should be more to poor people rather than the rich. It is only by doing so that the public expenditure can promote the maximum Social benefit of society.

To quote Findlay Shirras, “if other things being equal, public expenditure  should bring  with it important social advantages such as an increased production the preservation of social whole against external attack and internal disorder and as far as possible a reduction of the Inequality of income.” See Full 5 Canons or Principles of Public Expenditure HERE..