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 ?
The separate company for civil activities alone is liable to repay the illegal State aid and is due to be liquidated.
As discussed below, while one cannot consider the use of state aid in a tax context unprecedented, there is no doubt the last two or three years have seen a relatively new phenomenon of EU-wide targeting of seemingly routine tax rulings and APAs.
In essence, the arguments raised in order to justify this state aid could apply to any other large-scale power project as well.
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.
Are cities and towns, then, supposed to take comfort in the knowledge that the Legislature gave more state aid to schools?
The Commission also concluded that the working capital facility and the guarantee arrangements provided by HMTreasury to Bradford & Bingley constitute state aid.
The "Second Survey" expresses the belief that "greater efforts should be made to increase transparency in the field of state aids and that the results be used as a basis to adapting state aid policy.
The program rating is based on the ability of Missouri school districts to apply for direct deposit of monthly state aid payments to a trustee to pay debt service, the program's requirement for debt service coverage of at least 1.
The investigation found that the planned cancellation of these debts, amounting to BGN 224 million (around 114 million), is in line with the Commission's 2008 Guidelines on state aid for railways.
A group of nineteen countries, including Germany, Spain, Poland, Italy and Belgium, spoke against inter alia obligatory annual reports and central register of state aid that, in their view, would add "new administrative burdens" to state aid implementation procedures, making them "more complex" and "less effective".
As lawyers with the Santa Maria law firm in Italy, the editor and his collaborating colleagues have been called upon to defend many of the major cases purported by the European Commission to be state aid that have been filed against Italy.
Earlier, on 21 May, the Commission published its report on state aid in the coal sector (see other article).

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