Subsidy

In economics, a subsidy is generally a monetary grant given by government to lower the price faced by producers or consumers of a good, generally because it is considered to be in the public interest. Sometimes, the term subsidy may also refer to assistance granted by others, such as individuals or non-government institutions, although this is more usually described as charity. A subsidy normally exemplifies the opposite of a tax, but can also be given using a reduction of the tax burden. These kinds of subsidy are generally called tax expenditures or tax breaks.

Controversy

One of the most controversial subsidies, especially in publications like The Economist, are the subsidies used in first-world countries and targeted towards farmers. These subsidies have remained in place even though many international accords have reduced other forms of subsidies or tariffs.

Related Topics:
The Economist - First-world

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Many developing nations who are dependent on exports of farm produce argue that subsidies given to farmers in rich nations are the biggest single contributor to their continued poverty. The subsidies drive down the global market price to the point where farmers in poor nations, who do not receive subsidies, can no longer earn a living by selling their products. As a result not only are they unable to work their way out of poverty by selling their products, but they also become dependent on imports of subsidised goods because they are cheaper than locally produced goods. Most rich nations are reluctant to change their policy of giving subsidies though, because their inherently higher labour costs make their domestic farmers unable to compete globally without the subsidies. Removing the subsidies would mean lost jobs, and with powerful lobby groups and popular support to consider, few politicians are willing to change the status-quo in favour of poor farmers abroad, at the expense of local farmers.

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Conversely, many poor people consume subsidized produce, which would become more expensive without subsidies.

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