Subsidies

Examples of Subsidies in the following topics:

• Subsidies and Contracting

  • Some subsidies are to encourage the sale of exports; some are for food to keep down the cost of living; and other subsidies encourage the expansion of farm production.
  • Subsidies may distort markets and can impose large economic costs.
  • Ways to classify subsidies include the reason behind them, the recipients of the subsidy, and the source of the funds.
  • One of the primary ways to classify subsidies is the means of distributing the subsidy.
  • The term subsidy may or may not have a negative connotation.

• Subsidies and Income Supports

  • An agricultural subsidy is a government grant paid to incumbents in the industry to reduce costs and influence the supply of commodities.
  • Another, less direct, form of subsidy is in the taxing system for consumers.
  • Nutrition: Another interesting side effect of subsidies and the artificially reduced price of food is obesity and overeating.
  • Overall, while subsidies are largely a good thing and enable individuals to buy the necessities, there are clear cut downsides to subsidies as well.
  • Analyze the positive and negative affects of subsidies on agricultural economics.

• Farm Policies and World Trade

  • By the mid-1980s, governments began working to reduce subsidies and allow freer trade for farm goods.
  • While these talks were designed to eliminate export subsidies entirely, the delegates could not agree on going that far.
  • The European Community, meanwhile, moved to cut export subsidies, and trade tensions ebbed by the late 1990s.
  • From Americans' point of view, the European Community failed to follow through with its commitment to reduce agricultural subsidies.
  • Vice President Al Gore called again for deep cuts in agricultural subsidies and tariffs worldwide.

• Price Supports

  • This can happen in reverse as well in the form of subsidies.
  • Subsidies are the reduction of costs for producers, generally in the form of governmental grants provided to suppliers.
  • This is an interesting economic factor in farm subsidies, as these subsidies are largely going to corporations of substantial size, as opposed to small farmers.
  • The subsidies provide a price floor (or a minimum price in which farmers can be reimbursed for certain products).
  • This chart shows how subsidies and price controls affect supply and demand.

• Other Barriers

  • Export subsidies: Export subsidies are production subsidies granted to exported products, usually by a government.
  • With export subsidies, domestic producers can sell their commodities in foreign markets below cost, which makes them more competitive.
  • Countervailing duties: Countervailing duties, or anti-subsidy duties, are extra duties levied on imports in order to neutralize an export subsidy.
  • If a country discovers that a foreign country subsidizes its exports, and domestic producers are injured as a result, a countervailing duty can be imposed in order to reduce the export subsidy advantage.

• Economics

  • Trade barriers, such as taxes on food imports or subsidies for farmers in developed economies, lead to overproduction and dumping on world markets, thus lowering prices and hurting poor-country farmers.
  • An export subsidy can also be used to give an advantage to a domestic producer over a foreign producer.
  • Export subsidies tend to have a particularly strong negative effect because in addition to distorting resource allocation, they reduce the economy's terms of trade.
  • In contrast to tariffs, export subsidies lead to an over allocation of the economy's resources to the production of tradeable goods.

• Other Approaches to Calculating GDP

  • Two adjustments must be made to get the GDP: Indirect taxes minus subsidies are added to get from factor cost to market prices.
  • GDP = compensation of employees + gross operating surplus + gross mixed income + taxes less subsidies on production and imports.
  • The difference between basic prices and final prices (those used in the expenditure calculation) is the total taxes and subsidies that the government has levied or paid on that production.
  • So, adding taxes less subsidies on production and imports converts GDP at factor cost (as noted, a net domestic product) to GDP.

• Financing Company Operations

  • Examples of bootstrapping include: Owner financing, sweat equity, minimization of the accounts receivable, joint utilization, delaying payment, minimizing inventory, subsidy finance, and personal debt.
  • Examples of Bootstrapping: Owner financing Sweat equity Minimization of the accounts receivable Joint utilization Delaying payment Minimizing inventory Subsidy finance Personal Debt

• In the 1980s and 1990s

  • Although the 1985 law only modestly affected the government farm-assistance structure, improving economic times helped keep the subsidy totals down.
  • Under the law, farmers would get fixed subsidy payments unrelated to market prices.
  • In 1998 and again in 1999, Congress passed bailout laws that temporarily boosted farm subsidies the 1996 act had tried to phase out.
  • Subsidies of $22,500 million in 1999 actually set a new record.

• Evaluating Policies

  • Subsidies: The government can utilize subsidies to reduce price points and increase the overall supply within a system .
  • The use of subsidies in developed nations has been a major point of international contention, since they may force developing nations out of the global agriculture market.