Subsidies

Subsidies are a form of financial aid or support extended to an economic sector (or institution, business, or individual) generally with the aim of promoting economic and social policy. Although commonly extended from the government, the term subsidy can relate to any type of support – for example from NGOs or implicit subsidies. Subsidies come in various forms including: direct (cash grants, interest-free loans) and indirect (tax breaks, insurance, low-interest loans, depreciation write-offs, rent rebates).

Types of Subsidies

There are various types of subsidies including direct subsidies, indirect subsidies, export subsidies, and import subsidies.

Direct Subsidy

A direct subsidy is a cash transfer from the government to a recipient. This can be in the form of grants, loans, or tax credits.

Indirect Subsidy

An indirect subsidy is a non-cash benefit provided by the government. This can include things like tax breaks, insurance, low-interest loans, depreciation write-offs, and rent rebates.

Export Subsidy

An export subsidy is a government policy to encourage export of goods and discourage sale of goods on the domestic market through low-cost loans or tax relief for exporters, or government-financed international advertising.

Import Subsidy

An import subsidy is a form of financial aid provided by the government to promote the import of certain goods.

Effects of Subsidies

Subsidies can have a wide range of effects on an economy. They can promote growth and development in certain sectors, but they can also distort markets and create inefficiencies.

Criticism of Subsidies

While subsidies can have positive effects, they are also subject to criticism. Critics argue that they distort markets, lead to inefficiencies, and can be used as a form of protectionism.

See Also

• Government Spending
• Economic Policy
• Protectionism
• Market Distortion