Subsidy

Not to be confused with Subsidiarity or Subsidiary.

A subsidy, subvention or government incentive is a type of government expenditure for individuals, households, or businesses.

Subsidies take various forms— such as direct government expenditures, tax incentives, soft loans, price support, and government provision of goods and services.[1] For instance, the government may distribute direct payment subsidies to individuals and households during an economic downturn in order to help its citizens pay their bills and to stimulate economic activity.

Although commonly extended from the government, the term subsidy can relate to any type of support – for example from NGOs, or international organizations. Subsidies come in various forms including: direct (cash grants, interest-free loans) and indirect (tax breaks, insurance, low-interest loans, accelerated depreciation, rent rebates).[2][3] Furthermore, they can be broad or narrow, legal or illegal, ethical or unethical. The most common forms of subsidies are those to the producer or the consumer.

All countries use subsidies via national and sub-national entities through different forms such as tax incentives and direct grants. Likewise, subsidies have an economic influence on both a domestic and international level. On a domestic level, subsidies affect the allocation decision of domestic resources, income distribution, and expenditure productivity. On an international level, subsidies may increase or decrease international interaction and integration through trade.[4]

Generally, subsidies can take up a substantial portion of government expenditure. Among OECD countries in 2020, the median value of subsidies and other transfers such as social benefits and non-repayable transfers to private and public enterprises was 56.3 percent of total government expenses which was 34.9 percent (weighted average) of GDP in the same year.[5] The number of subsidies in force have been rapidly increasing since 2008.[6]

  1. ^ OECD. "Subsidies, Competition and Trade, OECD Competition Policy Roundtable Background Note" (PDF). OECD. Archived (PDF) from the original on 27 November 2022. Retrieved 27 April 2023.
  2. ^ Cite error: The named reference Haley and Haley 2013 was invoked but never defined (see the help page).
  3. ^ Myers, N.; Kent, J. (2001). Perverse subsidies: how tax dollars can undercut the environment and the economy. Washington, DC: Island Press. ISBN 978-1-55963-835-7.
  4. ^ Schwartz, Gerd; Clements, Benedict (1999). "Government Subsidies". Journal of Economic Surveys. 13 (2): 119. doi:10.1111/1467-6419.00079. Archived from the original on 28 April 2023. Retrieved 27 April 2023.
  5. ^ "Subsidies and other transfers (% of expense) - OECD members". The World Bank. Archived from the original on 28 April 2023. Retrieved 27 April 2023.
  6. ^ OECD. "Subsidies, Competition and Trade, OECD Competition Policy Roundtable Background Note" (PDF). Archived (PDF) from the original on 27 November 2022. Retrieved 27 April 2023.
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