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 ?
Indeed, the banking collapse of the 1980s was prologue to a new unlikely partnership formed to increase the subsidization of residential mortgage risk.
In this paper, we do not focus on the role of fiscal policy on different kinds of human-capital formation, but we consider explicitly the effect of income-tax progression by combining its effect with the effect resulting from subsidization. This way of looking at educational policy is important because, as (Steuerle, 1996, p.
"For a start, the operators marketing expenditure was immediately halved: this was simply the money they were spending on the actual subsidization," Strand reports.
The determination of foreign subsidization is done by the U.S.
Topics covered include: the effects of competition on hospital costs; the necessity of HCFA payments for supporting HMO participation in Medicare Managed Care; the impact of Medicare on health care utilization; the subsidization of health insurance and the uninsured; and the public oversight role in hospital ownership conversions.
There is no subsidization of less productive partners, so it is very responsive to market conditions.
Before an action may be taken against dumped or unfairly subsidized goods, the affected Jamaican industry must provide information and supporting evidence that demonstrate not only that dumping or WTO- inconsistent subsidization has occurred, but also that "material injury" resulted.
His paper entitled, "Cross Product Subsidization in the Health Insurance Market with Managed Care: A Model and Issues," appeared in the June 1999 issue of the AEJ.
The head of a Japanese shipbuilding association said Tuesday he will send a letter of protest to his South Korean counterpart regarding South Korea's subsidization of its shipbuilding industry.
In this regard, Japan may well continue to experience a process that I have labeled "Italianization." Conservative politicians in Japan, like the Italian Christian Democrats (DC) for much of the 1970s and 1980s, could well retain power by exceptionally generous subsidization of their core constituents through generous doles from the public treasury.
They said the translation of manuals into Japanese, the adjustment of the voltage of home electrical appliances to the Japanese standard of 100 volts and development of cosmetics for Japanese may qualify for subsidization.
One of the advantages to the city of operating the municipal electric utility is the potential for cross subsidization between electric customers and the tax base.