subsidy

A subsidy is a financial contribution by a government or public body that confers a benefit to a target entity, product, or sector, with the aim of influencing economic outcomes. It can take the form of direct payments, tax relief, price supports, loans, guarantees, or in-kind transfers, and may be conditional on behavior or outcomes. Subsidies can be direct (cash grants) or indirect (tax credits, favorable loans). They can be targeted to specific industries or broadly available.

Common purposes include supporting research and development, agriculture, energy transition, regional development, employment, affordability, or strategic objectives. They can lower costs, stabilize prices, encourage investment, or ensure access to essential goods or services. They can also be used to reduce poverty or shield consumers from price volatility.

Impacts of subsidies are mixed. They can promote innovation, employment, and affordability, but may distort markets, misallocate resources, create excessive risk-taking or dependency, and impose fiscal burdens. Subsidies can also provoke trade tensions or be challenged under international rules, such as the World Trade Organization regime on subsidies and countervailing measures, which limits certain subsidies and allows remedies when they cause injury to other countries’ industries.

Measurement and policy design vary. Governments report subsidies in budgets, while researchers track direct transfers, price supports, and fiscal costs. Notable examples include agricultural subsidies and fossil-fuel subsidies. Policy choices often aim to improve targeting, specify sunset conditions, and balance public objectives with fiscal responsibility and market efficiency.