Subsidy

A subsidy is assistance paid to a business or economic sector or producers. Most subsidies are set in place by the government for producers or are distributed as subventions in an industry to prevent the decline of that industry (e.g., as a result of continuous unprofitable operations) or an increase in the prices of its products or simply to encourage it to hire more labor (as in the case of a wage subsidy). Examples are subsidies to encourage the sale of exports; subsidies on some foods to keep down the cost of living, especially in urban areas; and subsidies to encourage the expansion of farm production and achieve self-reliance in food production. Subsidy has been used by economists with different meanings and connotations in different contexts. The dictionary defines it as "money granted by state, public body, etc., to keep down the prices of commodities, etc.”. Environmental economists define subsidies as uncompensated environmental damage arising from any flow of goods and services. In a budgetary context, it may be defined as “unrecovered costs in the public provision of private goods”.