Editing Subsidy (section)

==Types==

===Production subsidy===
A production subsidy encourages suppliers to increase the output of a particular product by partially offsetting the production costs or losses.<ref name="Collins Dictionary">{{cite web|title=Collins Dictionary of Economics|url=http://www.collinsdictionary.com/dictionary/english/subsidy?showCookiePolicy=true|access-date=2013-09-05|archive-date=2013-09-27|archive-url=https://web.archive.org/web/20130927195559/http://www.collinsdictionary.com/dictionary/english/subsidy?showCookiePolicy=true|url-status=live}}</ref> The objective of production subsidies is to expand production of a particular product more so that the market would promote but without raising the final price to consumers. This type of subsidy is predominantly found in developed markets.<ref name="cheapMyers and Kent 2001" /> Other examples of production subsidies include the assistance in the creation of a new firm ([[Enterprise Investment Scheme]]), industry ([[industrial policy]]) and even the development of certain areas ([[regional policy]]). Production subsidies are critically discussed in the literature as they can cause many problems including the additional cost of storing the extra produced products, depressing world market prices, and incentivizing producers to [[over-produce]], for example, a farmer overproducing in terms of his land's [[carrying capacity]].

===Consumer/consumption subsidy===
A consumption subsidy is one that subsidizes the behavior of consumers. This type of subsidies are most common in [[developing countries]] where governments subsidise such things as food, water, electricity and education on the basis that no matter how impoverished, all should be allowed those most basic requirements.<ref name="cheapMyers and Kent 2001" /> For example, some governments offer "lifeline" rates for electricity, that is, the first increment of electricity each month is subsidized.<ref name="cheapMyers and Kent 2001" /> Evidence from recent studies suggests that government expenditures on subsidies remain high in many countries, often amounting to several percentage points of GDP. Subsidization on such a scale implies substantial [[opportunity cost]]s. There are at least three compelling reasons for studying government subsidy behavior. First, subsidies are a major instrument of government expenditure policy. Second, on a domestic level, subsidies affect domestic resource allocation decisions, income distribution, and expenditure productivity. A consumer subsidy is a shift in demand as the subsidy is given directly to consumers.

===Export subsidy===
An export subsidy is a support from the government for products that are exported, as a means of assisting the country's balance of payments.<ref name="Collins Dictionary" /> [[Usha Haley]] and [[George Haley]] identified the subsidies to manufacturing industry provided by the Chinese government and how they have altered trade patterns.<ref name="Haley and Haley 2013">{{cite news |last=Haley |first=U. |title=Subsidies to Chinese Industry |year=2013 |publisher=Oxford University Press |location=London |url=https://www.economist.com/news/finance-and-economics/21576680-new-book-lays-out-scale-chinas-industrial-subsidies-perverse-advantage |author2=G. Haley |newspaper=The Economist |access-date=2017-09-15 |archive-date=2017-06-16 |archive-url=https://web.archive.org/web/20170616162334/http://www.economist.com/news/finance-and-economics/21576680-new-book-lays-out-scale-chinas-industrial-subsidies-perverse-advantage |url-status=live }}</ref> Traditionally, economists have argued that subsidies benefit consumers but hurt the subsidizing countries. Haley and Haley provided data to show that over the decade after China joined the [[World Trade Organization]] industrial subsidies have helped give China an advantage in industries in which they previously enjoyed no comparative advantage such as the steel, glass, paper, auto parts, and solar industries.<ref name="Haley and Haley 2013"/> China's shores have also collapsed from overfishing and industrialization, which is why the Chinese government heavily subsidizes its fishermen, who sail the world in search of new grounds.<ref>{{Cite news|last=Urbina|first=Ian|date=11 August 2020|title=The deadly secret of China's invisible armada|work=NBC News|url=https://www.nbcnews.com/specials/china-illegal-fishing-fleet/index.html|url-status=live|access-date=19 February 2021|archive-date=19 February 2021|archive-url=https://web.archive.org/web/20210219095438/https://www.nbcnews.com/specials/china-illegal-fishing-fleet/index.html}}</ref>

Export subsidy is known for being abused. For example, some exporters substantially over declare the value of their goods so as to benefit more from the export subsidy. Another method is to export a batch of goods to a foreign country but the same goods will be re-imported by the same trader via a circuitous route and changing the product description so as to obscure their origin. Thus the trader benefits from the export subsidy without creating real trade value to the economy. Export subsidy as such can become a self-defeating and disruptive policy.

Adam Smith observed that special government subsidies enabled exporters to sell abroad at substantial ongoing losses. He did not regard that as a sound and sustainable policy. That was because "… under normal industrial-commercial conditions their own interests soon oblige loss-making businesses to deploy their capital in other ways – or to move into markets where the sales prices do cover the supply costs and yield ordinary profits. Like other mercantilist schemes and devices, export bounties are a means of trying to force business capital into channels it would not naturally enter. The schemes are invariably costly and damaging in various ways."<ref>Smith, Adam. ''The Wealth of Nations: A Translation into Modern English''. ISR/Google Books, 2019, page 300. ISBN 9780906321706</ref>

===Import subsidy===
An import subsidy is support from the government for products that are imported. Rarer than an export subsidy, an import subsidy further reduces the price to consumers for imported goods. Import subsidies have various effects depending on the subject. For example, consumers in the importing country are better off and experience an increase in consumer welfare due to the decrease in price of the imported goods, as well as the decrease in price of the domestic substitute goods. Conversely, the consumers in the exporting country experience a decrease in consumer welfare due to an increase in the price of their domestic goods. Furthermore, producers of the importing country experience a loss of welfare due to a decrease in the price for the goods in their market, while on the other side, the exporters of the producing country experience an increase in well-being due to the increase in demand. Ultimately, the import subsidy is rarely used due to an overall loss of welfare for the country due to a decrease in domestic production and a reduction in production throughout the world. However, that can result in a redistribution of income.<ref>{{cite web|last1=Suranovic|first1=Steven|title=Welfare Effects of a VIE/Import Subsidy: Large Country|url=http://internationalecon.com/Trade/Tch90/T90-31.php|website=International Trade Theory and Policy|access-date=16 March 2018|archive-date=16 March 2018|archive-url=https://web.archive.org/web/20180316214049/http://internationalecon.com/Trade/Tch90/T90-31.php|url-status=live}}</ref>

===Employment subsidy===
Employment or wage subsidies keep the employment relationship ongoing even during financial crisis. It is particularly beneficial for enterprises to recover quickly after a temporary suspension following a crisis. Workers are prevented from losing their jobs and other associated employment benefits such as annual leave entitlements and retirement pensions.<ref>{{cite web |title=Temporary Wage Subsidies |url=https://www.ilo.org/wcmsp5/groups/public/---ed_protect/---protrav/---travail/documents/publication/wcms_745666.pdf |website=International Labour Organisation |access-date=27 April 2023}}</ref>

Employment subsidies allow individual beneficiaries a minimum standard of living at the very least. However, less than half of active jobseekers in around 50% of OECD countries receive unemployment support.<ref>{{cite web |title=Basic income as a policy option: Can it add up? |url=https://www.oecd.org/social/Basic-Income-Policy-Option-2017.pdf |website=OECD |access-date=27 April 2023 |archive-date=28 April 2023 |archive-url=https://web.archive.org/web/20230428031036/https://www.oecd.org/social/Basic-Income-Policy-Option-2017.pdf |url-status=live }}</ref> The effect of employment subsidies may not be evident immediately. When employers received grants to subside a substantial part of the wages for retaining their employees or to create new jobs during severe recessions such as the 2008 GFC (Global Financial Crisis), there were minor impacts on employment during the first year. However, the subsidy began to yield positive effects on employment, particularly a decrease in the unemployment rate, in the second year as employers began to properly utilise the subsidy.<ref>{{cite journal |last1=Kim |first1=Hyejin |last2=Lee |first2=Jungmin |title=Can employment subsidies save jobs? Evidence from a shipbuilding city in South Korea |journal=Labour Economics |date=2019 |volume=61 |page=101763 |doi=10.1016/j.labeco.2019.101763 |s2cid=204435231 |url=https://www.sciencedirect.com/science/article/pii/S0927537119300892}}</ref>

===Tax subsidy===
Tax subsidies, also known as tax breaks or [[tax expenditures]], are a way for governments to achieve certain outcomes without directly providing cash payments. By offering tax breaks, the government can incentivize behavior that is beneficial to the economy or society as a whole. Tax subsidies can also have negative consequences.

One type of tax subsidy is a health tax deduction, which allows individuals or businesses to deduct their health expenses from their taxable income. This can be seen as a way to incentivize people to prioritize their health and well-being. However, it can also create distortions in the economy by encouraging people to spend more on health care than they otherwise would.

Another type of tax subsidy is related to [[Intellectual Property]]. [[Base Erosion and Profit Shifting]] (BEPS) is a particular form of tax subsidy that involves companies shifting their profits to low-tax jurisdictions in order to reduce their overall tax burden. The [[Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting]] is a treaty signed by half the nations of the world aimed at preventing this type of tax avoidance.

While tax subsidies can be effective in achieving certain outcomes, they are also less transparent than direct cash payments and can be difficult to undo. Some argue that tax breaks disproportionately benefit the wealthy and large corporations, further exacerbating income inequality. Therefore, it is important for governments to carefully consider the potential consequences of offering tax subsidies and ensure that they are targeted towards achieving the greatest public good.

Tax subsidies can have unintended consequences, such as creating market distortions that favor certain industries or companies over others. For example, if a government offers tax breaks to incentivize investment in renewable energy, it may lead to a glut of renewable energy projects and an oversupply of energy in the market. This, in turn, can lead to lower prices for energy and financial losses for investors.

Tax subsidies can be difficult to monitor and enforce, which can lead to abuse and fraud. Companies may claim tax breaks for activities that do not qualify, or may use complex legal structures to shift profits to lower tax jurisdictions. This can result in lost revenue for governments and a lack of fairness in the tax system.

Despite these concerns, tax subsidies remain a popular tool for governments to promote various policy objectives, such as economic growth, job creation, and [[environmental sustainability]]. The use of tax subsidies is often debated in political circles, with some arguing that they are necessary to support certain industries or to incentivize certain behaviors, while others argue that they create inefficiencies and distortions in the economy.

In conclusion, tax subsidies are a powerful tool for governments to achieve policy goals, but they come with their own set of challenges and limitations. It is important for policymakers to carefully consider the potential unintended consequences of tax subsidies and to design them in a way that maximizes their benefits while minimizing their costs. Additionally, strong monitoring and enforcement mechanisms are needed to ensure that tax subsidies are used appropriately and do not result in abuse or fraud.

===Transport subsidies===
Some governments subsidise transport, especially rail and bus transport, which decrease congestion and pollution compared to cars. In the EU, [[rail subsidies]] are around €73 billion, and Chinese subsidies reach $130 billion.<ref>{{cite web |url=http://www.eea.europa.eu/publications/technical_report_2007_3/download |title=EU Technical Report 2007 |access-date=2016-03-23 |archive-date=2021-02-06 |archive-url=https://web.archive.org/web/20210206193133/https://www.eea.europa.eu/publications/technical_report_2007_3/download |url-status=live }}</ref><ref>{{cite news|url=https://www.bloomberg.com/news/articles/2015-03-05/china-to-invest-128-billion-in-rail-expand-global-market-share|title=China to Invest $128 Billion in Rail, Push for Global Share|website=[[Bloomberg News]]|date=5 March 2015|access-date=2017-03-11|archive-date=2017-03-24|archive-url=https://web.archive.org/web/20170324083514/https://www.bloomberg.com/news/articles/2015-03-05/china-to-invest-128-billion-in-rail-expand-global-market-share|url-status=live}}</ref>

Publicly owned airports can be an indirect subsidy if they lose money. The European Union, for instance, criticizes Germany for its high number of money-losing airports that are used primarily by [[low cost carrier]]s, characterizing the arrangement as an illegal subsidy.{{Citation needed|date=November 2017}}

In many countries, roads and highways are paid for through general revenue, rather than tolls or other dedicated sources that are paid only by road users, creating an indirect subsidy for road transportation. The fact that long-distance buses in Germany do not pay tolls has been called an indirect subsidy by critics, who point to track access charges for railways.

===Energy subsidies===

{{excerpt|Energy subsidy}}

====Fossil fuels====
{{excerpt| fossil fuel subsidies}}

===Housing subsidies===
[[Subsidized housing|Housing subsidies]] are designed to promote the construction industry and homeownership. As of 2018, U.S housing subsidies total around $15 billion per year. Housing subsidies can come in two types; assistance with down payment and interest rate subsidies. The [[Home mortgage interest deduction|deduction of mortgage interest]] from the federal income tax accounts for the largest interest rate subsidy. Additionally, the federal government will help low-income families with the down payment, coming to $10.9 million in 2008.<ref name=amad>{{cite web|last1=Amadeo|first1=Kimberly|title=Government Subsidies (Farm, Oil, Export, etc.)|url=https://www.thebalance.com/government-subsidies-definition-farm-oil-export-etc-3305788|website=The Balance|access-date=16 March 2018|archive-date=16 March 2018|archive-url=https://web.archive.org/web/20180316152018/https://www.thebalance.com/government-subsidies-definition-farm-oil-export-etc-3305788|url-status=live}}</ref>

As a housing policy tool, housing subsidies also help low income individuals gain and maintain liveable residency by easing the cost burdens of housing for low income individuals and households. However, some policy makers and experts believe they are costly to implement and may even reduce incentives for beneficiaries to participate in the labour market. In the contrary, certain literatures have found that subsidy cuts do not encourage employment or participation among beneficiaries. For example, research by Daniel Borbely found that reducing housing subsidies did not increase employment and labour force participation. Though, he also added that claimants relocated to other areas of the rental market to maintain their benefits.<ref>{{cite journal |last1=Borbely |first1=Daniel |title=The impact of housing subsidy cuts on the labour market outcomes of claimants: Evidence from England |journal=Journal of Housing Economics |date=2022 |volume=57 |page=101859 |doi=10.1016/j.jhe.2022.101859 |doi-access=free }}</ref>

Nonetheless, the most common method for providing housing subsidies is via direct payments to renters by covering a part of their rent on the private rent market. This method of direct transfer of housing subsidies is often referred to as "housing vouchers". In the United States, the so-called Section 8 is a direct payment program subsidising the largest amount of money to renters for rental assistance.<ref>{{cite web |title=What Are Housing Subsidies? |url=https://www.planetizen.com/definition/housing-subsidies |website=Planetizen |access-date=27 April 2023 |archive-date=28 April 2023 |archive-url=https://web.archive.org/web/20230428035710/https://www.planetizen.com/definition/housing-subsidies |url-status=live }}</ref>

===Environmental externalities===
{{See also|Climate change mitigation|Environmental economics|Environmental protection}}
While conventional subsidies require financial support, many economists have described implicit subsidies in the form of [[Pigovian tax|untaxed]] environmental [[Externality|externalities]].<ref name="Myers 1998a" /> These externalities include things such as pollution from vehicle emissions, [[pesticides]], or other sources.

A 2015 report studied the implicit subsidies accruing to 20 fossil fuel companies. It estimated that the societal costs from downstream emissions and pollution attributable to these companies were substantial.<ref name="hope-etal-2015">{{cite book
 | first1 = Chris
 | last1 = Hope
 | first2 = Paul
 | last2 = Gilding
 | first3 = Jimena
 | last3 = Alvarez
 | title = Quantifying the implicit climate subsidy received by leading fossil fuel companies — Working Paper No. 02/2015
 | year = 2015
 | publisher = Cambridge Judge Business School, University of Cambridge
 | place = Cambridge, UK
 | url = http://www.jbs.cam.ac.uk/fileadmin/user_upload/research/workingpapers/wp1502.pdf
 | access-date = 27 June 2016
 | archive-date = 28 March 2016
 | archive-url = https://web.archive.org/web/20160328192509/http://www.jbs.cam.ac.uk/fileadmin/user_upload/research/workingpapers/wp1502.pdf
 | url-status = dead
 }}</ref><ref name="judge-business-school-2015">{{cite web
 | title = Measuring fossil fuel 'hidden' costs
 | date = 23 July 2015
 | url = http://insight.jbs.cam.ac.uk/2015/measuring-fossil-fuel-hidden-costs/
 | website = University of Cambridge Judge Business School
 | access-date = 27 June 2016
 | archive-date = 26 June 2016
 | archive-url = https://web.archive.org/web/20160626134335/http://insight.jbs.cam.ac.uk/2015/measuring-fossil-fuel-hidden-costs/
 | url-status = live
 }}</ref> The report spans the period 2008–2012 and notes that: "for all companies and all years, the economic cost to society of their {{CO2}} emissions was greater than their after‐tax profit, with the single exception of [[ExxonMobil]] in 2008."<ref name="hope-etal-2015"/>{{rp|4}} Pure coal companies fare even worse: "the economic cost to society exceeds total revenue (employment, taxes, supply purchases, and indirect employment) in all years, with this cost varying between nearly $2 and nearly $9 per $1 of revenue."<ref name="hope-etal-2015"/>{{rp|4–5}}