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In economics, a subsidy is generally a monetary grant given by a government to lower the price faced by producers or consumers of a good, generally because it is considered to be in the public interest. The term subsidy may also refer to assistance granted by others, such as individuals or non-government institutions, although this is more commonly described as charity. A subsidy normally exemplifies the opposite of a tax. Face-to-face trading interactions among on the New York Stock Exchange trading floor Economics, may just involve more otriches than you think social science, studies the production, distribution, and consumption of commodities. ...
A good in economics is any physical object (natural or man-made) or service that, upon consumption, increases utility, and therefore can be sold at a price in a market. ...
Public interest is a term used to denote political movements and organizations that are in the public interest—supporting general public and civic causes, in opposition of private and corporate ones (particularistic goals). ...
Allegorical personification of Charity as a mother with three infants by Anthony van Dyck // The word charity entered the English language through the O.Fr word charite which was derived from the Latin caritas.[1] In the twelfth century it indicated a state of benevolance towards the poor. ...
A tax (also known as a duty) is a financial charge or other levy imposed on an individual or a legal entity by a state or a functional equivalent of a state (e. ...
[edit] Overview Therefore, it is essential to consider the price elasticity of demand when estimating the total costs of a planned subsidy: it equals the subsidy per unit (difference between market price and subsidized price) times the higher equilibrium quantity. One category of goods suffers less from this effect: Public goods are — once created — in ample supply and the total costs of subsidies remain constant regardless of the number of consumers; depending on the form of the subsidy, however, the number of producers demanding their share of benefits may still rise and drive costs up. In economics, the price elasticity of demand (PED) is an elasticity that measures the nature and degree of the relationship between changes in quantity demanded of a good and changes in its price. ...
Market price is an economic concept with commonplace familiarity; it is the price that a good or service is offered at, or will fetch, in the marketplace; it is of interest mainly in the study of microeconomics. ...
In economics, a public good is a good that is hard or even impossible to produce for private profit, because the market fails to account for its large beneficial externalities. ...
Examples of subsidies include utilities, gasoline in the United States, welfare, farm subsidies, and (in some countries) certain aspects of student loans. A public utility is a company that maintains the infrastructure for a public service. ...
Gasoline, also called petrol, is a petroleum-derived liquid mixture consisting primarily of hydrocarbons and enhanced with benzene or iso-octane to increase octane ratings, used as fuel in internal combustion engines. ...
This article or section does not cite its references or sources. ...
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[edit] Tax breaks and corporate welfare -
As previously stated, a common form of subsidy is via a tax break. This is a reduction in the normal rate of a particular class of taxes targeted towards an individual or group of companies. Often this is described as "corporate welfare", although that term is also used as a blanket term for all other forms of subsidies. Larger companies who are planning to open a new factory, for example, shop around for a location which will provide them with the biggest tax breaks in a process called a race to the bottom. Locations provide these tax breaks because they often feel that the benefits of job creation will more than offset the decline in tax revenues. Federal law allows for this in order to allow states, through free enterprise, to help distribute jobs to areas less affluent. Subsidies are given as protection to smaller producers to help them compete with larger companies, to help correct international trade inbalances, to aid industry deemed critical to national security, and to help industry compete with other countries - due to subsidies being common practice throughout the world. Corporate welfare is a pejorative term, first coined by Ralph Nader in 1956, describing a governments bestowal of grants and/or tax breaks on corporations or other special favorable treatment from the government. ...
In government regulation, a race to the bottom is said to occur when competition between nations (over investment capital, for example) leads to the progressive dismantling of regulatory standards. ...
To some, another way that the government subsidizes industry is by failing to regulate externalities. For example, when a company pollutes, it generates savings for itself at public expense, in the form of environmental degradation and public health costs. Thus a cost of production is absorbed by the public. Some individuals argue that this is a form of subsidy of producers (Since producers are not paying the full social cost of production). However, this definition is not based on traditional economic theory, but rather political rhetoric. It raises the question of what "should" happen rather than what "does" happen, and is therefore not absolute.
[edit] Subsidies due to the effect of debt guarantees Another form of subsidy is due to the practice of a government guaranteeing a lender payment if a particular borrower defaults. This occurs in the United States, for example, in certain airline industry loans, in most student loans, in small business administration loans, in Ginnie Mae mortgage backed bonds, and is alleged to occur in the mortgage backed bonds issued through Fannie Mae and Freddie Mac. A government guarantee of payment lowers the risk of the loan for a lender, and since interest rates are primarily based on risk, the interest rate for the borrower lowers as well. Default is the name of a number of quite different concepts. ...
The Government National Mortgage Association (GNMA, also known as Ginnie Mae) was created by the United States Federal Government through a 1968 partition of the Federal National Mortgage Association. ...
The United States Federal Government created the Federal National Mortgage Association (FNMA) (NYSE: FNM), commonly known as Fannie Mae, in 1938 to establish a secondary market for mortgages insured by the Federal Housing Administration (FHA). ...
The Federal Home Loan Mortgage Corporation (Freddie Mac) (NYSE: FRE) is a stockholder-owned, publicly-traded company chartered by the United States federal government in 1970 to purchase mortgages and related securities, and then issues securities and bonds in financial markets backed by those mortgages in secondary markets. ...
[edit] Controversy One of the most controversial classes of subsidies, especially according to publications such as The Economist, are subsidies benefitting farmers in first-world countries. Charitable institutions like Oxfam describe such subsidies as dumping millions of surplus commodities (like sugar) on world markets, destroying opportunities for farmers in developing and poor countries, especially in Africa. For example, the EU is currently spending €3.30 in subsidies to export sugar worth €1 Source: Oxfam briefing paper. These subsidies have remained in place even though many international accords have reduced other forms of subsidies or tariffs. The Economist is a weekly news and international affairs publication of The Economist Newspaper Ltd edited in London, UK. It has been in continuous publication since September 1843. ...
Farmer spreading grasshopper bait in his alfalfa field. ...
The terms First World, Second World, and Third World were used to divide the nations of Earth into three broad categories. ...
Oxfam International is a confederation of 13 independent, non-profit, secular, community-based aid and development organizations who work with local partners in over 100 countries worldwide to reduce poverty, suffering, and injustice. ...
A view, held by Austrian economists and other free-marketers, is that subsidies do, in general, more harm than good by distorting economic signals. The Austrian School is a school of economic thought which rejects opposing economists reliance on methods used in natural science for the study of human action, and instead bases its formalism of economics on relationships through logic or introspection called praxeology. ...
Sometimes people believe profitable companies to be 'bullying' governments for subsidies and rescue packages, an example of rent-seeking behaviour. For example, [citation needed] in the case with Australian rail operator Pacific National, the company threatened the Tasmanian Government with a pull-out of rail services unless a subsidization was made, despite the fact Pacific National is owned by Toll Holdings, an extremely profitable multi-national company. In economics, rent seeking is the process by which an individual or firm seeks to profit through manipulation of the economic environment rather than through trade and the production of added wealth. ...
NR Locomotive Pacific National is one of Australias largest private rail freight businesses. ...
The coat of arms of Tasmania. ...
Toll Holdings is Australias largest transport company, with units or divisions in trucking, rail, sea and air transport. ...
[edit] Historical meaning In the 1500's the subsidy was a tax invented in England by Thomas Wolsey in 1513 that taxed based on the ability to pay. It was created in order that Henry VIII could pay for war with France. Cardinal Thomas Wolsey (c. ...
For the play, see Henry VIII (play). ...
[edit] Compare Antidumping is a means to restrict international trade without tariffs. ...
The Stanley R. Mickelson Safeguard complex in Nekoma, North Dakota, with the separate long-range detection radar located further north at Concrete, North Dakota, was the only operational anti-ballistic missile system ever deployed by the United States. ...
A trade barrier is general term that describes any government policy or regulation that restricts international trade, the barriers can take many forms, including: Import duties Import licenses Export licenses Quotas Tariffs Subsidies Non-tariff barriers to trade Most trade barriers work on the same principle: the imposition of some...
The Price-Anderson Nuclear Industries Indemnity Act (commonly called the Price-Anderson Act) is an act of the Congress of the United States. ...
[edit] See also This article needs to be cleaned up to conform to a higher standard of quality. ...
Copenhagen Consensus is a project which seeks to establish priorities for advancing global welfare using methodologies based on the theory of welfare economics. ...
Corporate welfare is a pejorative term, first coined by Ralph Nader in 1956, describing a governments bestowal of grants and/or tax breaks on corporations or other special favorable treatment from the government. ...
A cultural subsidy is a payment to cultural industries to ensure that some public policy purpose in culture (e. ...
The Direct Subsidy Scheme is a system instituted by the Hong Kong Education and Manpower Bureau (a division of the Hong Kong government) as a means to enhance the quality of private schools in Hong Kong at the kindergarten, primary, and secondary levels. ...
pollution credits, sometimes called pollution permits or pollution certificates are pollution rights as used in emissions trading. ...
In public relations and journalism, information subsidy is what information sources provide the news media by issuing press releases, purchasing advertising, or sending letters to the editor; this relieves the journalists from some burden of collecting information, and shortens the time to publication. ...
This box: • • A mixed economy is an economy that has a mix of economic systems. ...
A Pigouvian subsidy is similar to a Pigouvian tax, in which the main issue is to internalize within a firm, or service provider, a positive externality. ...
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