Subsidies can be in the form of tax breaks or cash payments or low-interest loans that are secured. Subsidies are designed to achieve some specific economic goal or a political or a social goal. Subsidies can have negative effects and can impede other efficient public expenditures.
Substitutes are a kind of reverse taxes, in that they allow companies or individuals money to pursue an endeavor instead of charging them for doing it (for instance tax incentives and student loans for free). Governments usually subsidise goods or activities that offer economic and environmental benefits.
For example, governments may help to finance the production of renewable energy by providing tax breaks to encourage its use and forcing utilities to purchase it. Or, they can subsidize the cost of housing by offering a loan or grant that will cover a part of the cost for renting or buying homes. This lets more people reside in a place they could not afford otherwise.
The purpose of subsidy programs will vary however, they are usually focused on achieving a particular national strategic goal or gaining an advantage in international markets. In certain instances, they compensate for a natural or structural weakness of an economy. For instance, subsidies for producers in agriculture aid in sustaining prices for farmers over the prices of imported food items. These kinds of subsidies can affect market prices and can result in a misallocation of resources.
Add Comment