Whar are Subsidies?

Published by Thomas Herold in Economics, Laws & Regulations, Trading

'Subsidies' is explained in detail and with examples in the Laws & Regulations edition of the Herold Financial Dictionary, which you can get from Amazon in Ebook or Paperback edition.

Subsidies are types of financial support or aid which a government or organization extends out to an economic industry, institution, individual, or business. These are done for the purpose of fostering particular economic or even social policies. The government is the most common provider of this type of assistance, but such support can also come from Non Governmental Organizations.

Such grants can be derived from a number of different forms of aid. These include indirect help as with insurance, tax breaks, accelerated depreciation, lower interest loans, and rent rebates. They can also be direct assistance in the form of interest-free loans or outright grants of cash or other assets. The ultimate goal of such a subsidy is to alleviate a form of financial burden. They are often deemed to be to the overall advantage of the entire public and not a specific person, business, or interest group by the very nature of the group receiving the help.

Such a subsidy grant is often regarded by governments as privileges. This is because they help with a relevant burden which was somehow unfairly levied on the receiver. They could also encourage a certain behavior or ultimate result through delivering financial support, as with farming subsidies to encourage domestic agriculture.

In general, such a subsidy will typically benefit a segment of an industry within a national economy. These can be employed to help out markets which are suffering by reducing perceived burdens from which they struggle. They might also boost additional development within an industry or research line via offering financial support for the efforts and work. Many times, these areas of production or research do not receive the necessary assistance which they require from the workings of the mainstream economy. Sometimes they are even outright disadvantaged by the actions undertaken by rival economies and nations.

There are two principal forms of subsidy aid as mentioned previously. These are direct and indirect subsidies. The direct form encompasses payments specifically directed to a certain industry or a given group. Cash is usually the medium of exchange offered to the receiving parties.

With indirect forms of a subsidy, there is no preset monetary value at which the help is limited or specified when it is provided to the individual, businesses, or industry. This might involve special goods or services which are price reduced. It could also include another form of government support to the given industry. It helps the much needed items to be bought at under the present market cost. This level of savings can vary greatly depending on the amount of the given organizations’ participation in the program.

Governments, in particular the American Federal and European Union governments, provide many different types of subsidies. These are not only limited to help for domestic industry or farmers. They can also involve welfare and social assistance as with payments, student loans, grants, housing loans, and a farm subsidy. When domestic farming struggles to endure within the intensely competitive international farming arena because of their lower prices of other countries’ farms, the U.S. or EU government bodies may provide actual cash subsidies to the farmers in order for them to afford to sell their products at the lower market rates. The intended goal is that they will still reap financial rewards sufficient to justify continuing to farm with this outright monetary assistance.

More recently, the government has become involved with health care subsidy to private citizens on an individual and family level. The Affordable Care Act of the U.S. allows its citizens to receive subsidies dependent on their size and income of the relevant household. Such a subsidy is intended to reduce the enormous out of pocket expenses associated with high health care premiums and co-payments for households which earn under a minimum income threshold. The funds of the subsidies go directly to the insurance company in question. This reduces the amount of money which the insurance company requires from the individual or household.

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The term 'Subsidies' is included in the Laws & Regulations edition of the Herold Financial Dictionary, which you can get from Amazon in Ebook or Paperback edition.