Subsidy



A subsidy is a quantity of money given to some entity, industry, or individual by the government. Subsidies are often given because the market may be under-providing some good or service, usually one with social benefits like environmental protection, education, or national defense.

Theory
If an economy is not producing enough of some good or service, governments might have to provide it via a subsidy. Direct subsidies might include offering cash to a firm to do something, or the government establishing its own agency to complete or promote some task. In theory subsidies should provide more benefits than the costs in taxation. Subsidies tend to increase output and increase the price of the subsidized good or service in question. In practice, subsidies are a highly contentious political issue. Debates focus on the exact costs and benefits, corruption, favoritism for certain industries, and lobbying.

Examples
A number of industries and business can and do receive direct and indirect subsidies. As previously mentioned, most of these can seem benign or even good on paper, but are often highly controversial in the real world.

Direct transfers and contracts
The most obvious type of a subsidy is any direct transfer of funds or contract given to a firm to do something. For example, oil in Nigeria.

Intellectual property
Sometimes patents and copyrights are thought of as a kind of subsidy, encouraging more activity in R&D to produce medicine that can be patented. Examples include the infamous EpiPen.

Interest rates and loans
Low interest loans or the manipulation of interest rates can be done to increase certain activity, give people a chance at owning a home or just curry favor with potential political supporters.

Taxes
On occasion, tax loopholes and special deductions may favor some firms or actives over others. In the United States qualifying to write off interest payments for a mortgage loan is a kind of tax subsidy to housing.

Protectionism
Tariffs can be used to protect domestic industries and domestic producers, helping guarantee them income and employment. This redistributes income to domestic firms from foreign ones and often drives up consumer prices.

Regulations and zoning
Increasing the cost of building new apartments can enrich landlords at the expense of renters by denying new entrants into the market.