subsidy

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Related to State Aid: Food stamps, welfare

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 ?
43363 in the State Aid Register on the competition website once any confidentiality issues have been resolved.
In essence, the arguments raised in order to justify this state aid could apply to any other large-scale power project as well.
Now we have a new framework for state aid, meaning essentially every rule that every public body has worked to for the last decade has changed subtly and must therefore be reviewed carefully.
We will use this period to demonstrate how the project meets state aid rules and provides good value for consumers while cutting carbon in the energy sector.
Ms Caiach added that the council's chief executive Mark James had assured her that a legal opinion existed from 2007 explaining why Carmarthenshire County Council was exempt from EU state aid law in this regard, but that he had so far not supplied her with details of it.
It is technically true that if state aid to municipalities is combined with state aid to school districts, the two groups "in the aggregate" do indeed receive more state funding in this new budget.
A Commission statement said: "The Commission's assessment of these measures found that the state funding to enable the sale of the deposit book provided a state aid to Bradford & Bingley and to its retail deposit business that was sold.
Some local governments appear to have responded to this strain by increasing property taxes: "In almost half the states, real state aid per capita fell from 2002 to 2004, and real property tax collections per capita increased over the same period, with only a few exceptions," the paper says.
Wagner added, "I urge city officials to comply with applicable pension laws and with our audit recommendations to return the improperly received state aid to the commonwealth.
What's being discussed in Brussels includes many agricultural state aid issues," said Franco Castelfranchi, chairman of the European Federation of Thoroughbred Breeders' Associations.
In accordance with the European Union (EU) guidelines for state aid in the agriculture sector, EC noted that aids for investments with eligible expenses in excess of 25 million euros (approximately $30 million) must be specifically notified and approved by the commission.
THE EUROPEAN Commission has launched an in-depth inquiry into whether the Czech Republic paid illegal state aid to Czech steel producer Trinecke ?

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