Definition of subsidy
: a grant or gift of money: such as
: a sum of money formerly granted by the British Parliament to the crown and raised by special taxation
b : money granted by one state to another
c : a grant by a government to a private person or company to assist an enterprise deemed advantageous to the public
Wikipedia gives a more thorough definition but they are too long.
There 2 aspects of subsidies people should take note of because their economic impacts are completely different.
Firstly, subsidies are only partial payments of any requirement. They are not supposed to pay all expenses. If the subsidies cover 100% of the total costs, these assistances can be considered as just gifts, grants or allowances. It is true that subsidies are forms of gifts but if they are only partial or considered as partial, only then can it be called subsidies. Whether partial or complete is subject to judgement.
Secondly, subsidies are specific to the purposes that the payments are for. The more choices are given to the recipients of the payment, the more the payment behaves like cash payments. For example the food stamps issued in the USA. They behave more like cash handouts. Because the cash handouts have conditions attach to them, the economic impacts of subsidies apply to all the conditions.
The economic impacts of subsidies are:
1. favour the rich or those with more means.
It applies even to the food stamps. Poor people will need more things than just food so will end up selling the food stamps or the food themselves, at a huge discount.
2. more wastage.
Prices are low so demand increases even to the point of buying more than what is required.
3. discourage self-production.
The price of goods will drop below the production cost so it is not profitable to produce these subsidised item for self-use.
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