subsidy

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Subsidy

Financial assistance provided by a government to another entity, usually a business or industry. Subsidies are given to keep otherwise unprofitable ventures in business; for example, a family farm unable to compete with agribusiness may receive a subsidy from the government to maintain operations. Subsidies may also exist as a protectionist measure to make domestic goods less expensive than imports. Proponents of subsidies argue that they maintain employment in the domestic economy while critics state that they distort the market and make it less efficient. See also: Bailout.

subsidy

the provision of finance and other resources by the government or a firm to support a business activity or person. Subsidies can be direct (cash grants, interest free LOANS etc.) or indirect (DEPRECIATION write-offs, RENT rebates) and can be used for a variety of purposes. They include:
  1. PRODUCTION subsidies: the subsidization of suppliers by government to encourage them to increase the output of particular products by partially offsetting their production costs or even financing losses. The objective may be to expand production at a low price of some product which is deemed to be ‘essential’ (for example a particular foodstuff thereby also subsidizing consumers); or, for example, to assist in the start-up of a new firm (see ENTERPRISE INVESTMENT SCHEME) or industry (see INDUSTRIAL POLICY), and encourage firms to locate in particular areas (see REGIONAL POLICY). Also such subsidies are used to support failing firms and declining industries to facilitate orderly restructuring. See PROTECTIONISM;
  2. EXPORT subsidies: the subsidization by the government of exports in general or of a particular product which is exported, as a means of assisting the country's balance of payments;
  3. EMPLOYMENT subsidies: the subsidization of wages by the government as an incentive to businesses to provide more job opportunities, thereby reducing the level of unemployment in the economy;
  4. INCOME subsidies: the subsidization of persons through government transfer payment systems (for example, social security benefits) in order to allow them to enjoy some minimum standard of living;
  5. cross-subsidization: businesses themselves regularly practise internal or cross-subsidization as a means of expanding their activities, for example, using the profits generated by established products to finance NEW-PRODUCT DEVELOPMENT and DIVERSIFICATION into new-product markets.

subsidy

the provision of finance and other resources to support a business activity or person by the government. Subsidies can be direct (cash grants, interest-free LOANS, etc.) or indirect (depreciation write-offs, rent rebates) and can be used for a variety of purposes, including:
  1. PRODUCTION subsidies: the subsidization of suppliers by government to encourage them to increase the output of particular products by partially offsetting their production costs or even financing losses. The objective may be to expand production of some product at a low price that is deemed to be ‘essential’ (e.g. a particular foodstuff, thereby also subsidizing consumers); or, for example, to assist in the start-up of a new firm (see ENTERPRISE INVESTMENT SCHEME) or industry (see INDUSTRIAL POLICY) and encourage firms to locate in particular areas (see REGIONAL POLICY). In the first cases, subsidies are used as an instrument of income redistribution by reducing the price of products such as bread and milk that figure prominently in the budget of lower income groups or by directly subsidizing incomes.
  2. EXPORT subsidies: the subsidization of a particular product that is exported, or exports in general, by the government as a means of assisting the country's balance of payments.
  3. EMPLOYMENT subsidies: the subsidization of wages by the government as an incentive to businesses to provide more job opportunities, thereby reducing the level of unemployment in the economy INCOME subsidies: the subsidization of persons through government transfer payment systems (for example, social security benefits) in order to allow them to enjoy some minimum standard of living.

Subsidies encourage increased output of favoured products but distort domestic RESOURCE ALLOCATION processes in general and can adversely affect international trade. See REDISTRIBUTION-OFINCOME PRINCIPLE OF TAXATION, PROTECTIONISM, CROSS-SUBSIDIZATION.

See also BOSTON MATRIX.

subsidy

Benefits granted to persons or groups in order to encourage behavior or outcomes deemed important to society. Rent subsidies encourage construction of adequate affordable housing because the owner can be ensured of an income stream as long as the housing meets government requirements.The same subsidy encourages better consumer choices because of the availability of affordable alternatives. Tax credits to contractors for energy-efficient construction are subsidies to encourage the use of energy-efficient alternatives.

References in periodicals archive ?
That advocacy has included decrying government subsidies and urging big business to wean itself off corporate welfare.
At the international level, government subsidies are provided to a certain industry to support that industry and give it a greater competitive edge in global markets.
Osaka Gas admitted in July that its group had improperly obtained government subsidies worth 51 million yen for cogeneration systems.
French and Spanish government subsidies to boost innovation in shipbuilding received the EU's blessing on March 15.
Wansbeck MP Denis Murphy has already called on the influential Commons spending watchdog, the Public Accounts Committee, to investigate how Government subsidies were used by owners UK Coal ( and has promised to raise the issue again with Tony Blair.
From everything I know about Norquist and conservatives of his ilk, they really do hate the idea of government help for the needy, whose misfortune they attribute to defects of character while their own prosperity has nothing to do with the government subsidies they have been able to wangle, the taxes they have managed to evade, or the silver spoon that was often theirs at birth, but is solely attributable to their own talent and hard work.
In the June 2004 issue of Environment, Development, and Sustainability, the team reported that government subsidies of traditional energy industries, which cost American families about $410 each year in taxes, keep fuel prices artificially low, thus encouraging greater consumption and importation.
Boeing could jeopardize the launch funding of the new 7E7 aircraft should it press for an investigation of government subsidies received by rival Airbus because Boeing itself has received government subsidies that violate world-trade agreements, according to David Pritchard, a research associate at the Canada-United States Trade Center within the University at Buffalo (N.
Constitution Houses of worship, he said, must be sup ported by voluntary giving, not government subsidies.
Level the playing field on tariffs and government subsidies.
Yoshinobu Igaue was sentenced to two and half years in prison, suspended for three years, for falsely labeling beef to obtain government subsidies related to mad cow disease.
Our goal this year is to ensure our long-term viability by working with our government representatives to take steps toward a rational global market though matching steel production with need and eliminating foreign government subsidies," adds Kelly.

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