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Subsidy: Good or Bad For The Economic Development
Subsidy: Good or Bad For The Economic Development
Promote
Unemployment exports
subsidy
Boost
industrialization Illiteracy
Promote
political interest
How it benefits industry?
What WTO says
• The World Trade Organization has a broader definition of subsidies. It says a
subsidy is any financial benefit provided by a government which gives an
unfair advantage to a specific industry, business, or even individual.
The WTO mentions five types of subsidies:
SUBSIDY
Direct Indirect
Forms of subsidy
• Production subsidy
• Consumer subsidy
• Export subsidy
• Import subsidy
• Employment subsidy
• Tax subsidy
• Housing subsidy
Who bears the cost of these subsidies?
Judging the success of subsidy
• There are different ways to evaluate success of government subsidies. Most
economists consider subsidy a failure if it fails to improve the overall
economy.
• Policy makers might still consider it a success if it achieve a different
objective when it fulfils cultural or political goals.
• Hence most subsidies are long term failure in economic sense but still
achieve cultural or political goals.
Positive aspects of subsidy
Reduces Promote
Reduces Reduce Reduce market
unemployment positive
housing cost competition failure
rate externalities
Negative aspects of subsidy
Affect
Product Increase product Dead weight Continuous
shortage taxes competiti loss pressure
veness