subsidy

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subsidy,

financial assistance granted by a government or philanthropic foundation to a person or association for the purpose of promoting an enterprise considered beneficial to the public welfare. Subsidies were used in England in the later Middle Ages, when Parliament granted funds to the king to augment or replace customs and other taxes collected by royal prerogative; such early subsidies later became the means by which the power of taxation was taken from the king and lodged in Parliament. At first a nationwide levy, it became (in the reign of Charles II) a land tax levied annually without the intervention of a parliamentary vote. In France the king was able to retain his control and acquire financial powers that made him independent of any subsidy granted by the States-General. The term subsidy has had widely varied usage in the 20th cent. Subsidies may be granted to keep prices low, to maintain incomes, or to preserve employment. They are most important as grants to private corporations for performing some public service, such as to shipping companies and airlines for carrying the mail or to railroads for maintaining passenger service. These are often required where a necessary public service, particularly one that might otherwise not be profitable, is granted funds to remain in operation. In the United States, the National Railroad Passenger Corporation (Amtrak) receives federal subsidies for its intercity railway network. American cities have frequently subsidized transit companies to induce them to provide metropolitan transportation facilities for the public. Other commonly subsidized enterprises include agriculture (see agricultural subsidiesagricultural subsidies,
financial assistance to farmers through government-sponsored price-support programs. Beginning in the 1930s most industrialized countries developed agricultural price-support policies to reduce the volatility of prices for farm products and to increase,
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), business expansion, and housing and regional development. In the United States, 5 million households received housing assistance in 1998. Medical and educational institutions are among the largest recipients of subsidies (see foundationfoundation,
institution through which private wealth is contributed and distributed for public purpose. Foundations have existed since Greek and Roman times, when they honored deities.
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); in 1997, for instance, federal spending in the United States paid 46% of national medical costs. Subsidies have also been granted by one country to another country to aid it in pursuing a war effort, to gain its goodwill, or to help stabilize its economy. Very similar to a subsidy is a bountybounty,
amount paid by a government for the achievement of certain economic or other goals. It often takes the form of a premium paid for the increased production or export of certain goods. The bounty was an important technique of mercantilist economic policy (see mercantilism).
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, except that it usually takes the form of a per-unit premium or reward for a service already performed.

Subsidy

 

an allocation in the budget for the liquidation of expected losses (planovye ubytki) and for the balancing of subordinate budgets.

In capitalist systems subsidies are widely used to put capitalist enterprises in good order and to give financial assistance to war industry and nonprofit capital investment spheres (such as sectors of the infrastructure, including education, communications, and the like). Subsidies are appropriated for scientific research. Bourgeois states also use subsidies as a means of regulating the budgets of local “self-government,” which increases their dependence on the center. Subsidies are often paid to compensate the losses of monopolies in the extractive industry to continue mining deposits that would otherwise not be economically feasible and to pay farmers to reduce land under cultivation in order to support high price levels. Under imperialism, subsidies serve as additional enrichment for the financial oligarchy.

Under socialism subsidies are appropriated from the state budget for payment of expected losses of government enterprises and economic organizations that sell their basic production for prices lower than the planned cost price. Subsidies are also received by certain organizations in the nonproduction sphere, such as theaters.

The use of subsidies in the heavy industry of the USSR during the reconstruction period, the Great Patriotic War (1941-45), and the first postwar years accelerated the process of industrialization of the country and the reconstruction of sectors of the economy on a new technological basis. How-ever, the wide use of subsidies was an emergency measure, and it economically contradicted the principles of economic accountability. In 1949 wholesale prices for the production of certain sectors of heavy industry were increased. As a result, the system of subsidies was canceled in most of the sectors of the industry, though it was kept in many sectors of the extractive industry, in some sectors of the manufacturing industry, and also in unprofitable enterprises of other branches of industry operating according to the plan. The economic reform which began to be implemented in 1965 created the necessary prerequisites for the liquidation of expected losses in unprofitable industrial sectors and enterprises; wholesale prices were reviewed (1967), which made possible the liquidation of expected losses of certain sectors and the reduction to a great extent of the number of enterprises operating on the basis of expected losses (for example, in the coal, timber, and fishing industries). As a result, the enterprises were given greater incentive to use material, labor, and financial resources more efficiently.

Subsidies are also allocated from higher to subordinate budgets to fill the gap between revenues and expenditures in the latter. Before the 1930’s in the USSR, general subsidies were used to strengthen the resources of local budgets and were also applied to special subsidies for strictly defined purposes. In 1932 deductions from ail-Union revenues became the basic method of balancing subordinate budgets. The scope of subsidies was sharply limited. This change strengthened the stability of Union and local budgets and increased the responsibility and the incentives of Union republics and local soviets for procuring their own revenue sources. Subsidies from higher budgets are used only in instances when other, more efficient methods of balancing budgets are exhausted. Measures carried out in the course of the economic reform to strengthen the revenue base of local budgets, and especially village and settlement budgets, have significantly reduced the scope of subsidies.

R. D. VINOKUR

subsidy

1. a financial aid supplied by a government, as to industry, for reasons of public welfare, the balance of payments, etc.
2. English history a financial grant made originally for special purposes by Parliament to the Crown
3. any monetary contribution, grant, or aid
References in periodicals archive ?
This month's African Business Investigative Report dives into the murky world of one of the world's biggest national frauds-the billions that are being siphoned out by unscrupulous traders and officials abusing the fuel subsidy system.
PETER ADETUNJI Consultant I am in total support of the fuel subsidy removal.
Fuel subsidy reform, in theory, can enable a country to boost its economic growth rate, a key criterion for political stability and social/human development.
For his part, Jamal Al-Mutareb, a member of the federation and businessman in Yemen, said that Yemeni businessmen uphold the government's decision on fuel subsidy cuts as they regard it to be the only viable solution to save the Yemen economy from breaking down.
The Nigerian Governors' Forum (NGF), an association of the 36 state governors, has been particularly vociferous in demanding an end to fuel subsidy, which it describes as a monumental fraud.
The situation in Nigeria is again tense as it has been hit by riots during a general and indefinite strike over the government's decision to eliminate a fuel subsidy that doubled petrol prices against lifting of fuel subsidy that led to violent clashes between police and protesters, and saw a mob attacking a mosque, killing seven persons.
The government should consider the issue in larger interest of the community," he said, adding that careful consideration is needed before deciding on fuel subsidy.
According to a Reuters-cited source from Yemen's presidential committee, Yemeni authorities had handed to the Houthis a draft proposal that includes an offer to form a new government within a month and to set up an economic committee to review the fuel subsidy issue.
Over the next four years the fuel subsidy will reach a staggering $28 billion--more than the government spends on public schools.
Called High Five, it includes five years' free servicing, warranty, AA cover, 5%/five-year finance and a five-year fuel subsidy.
Although long a demand of international lenders, no Egyptian government has sought to aggressively tackle the bloated fuel subsidy programme for fear of igniting unrest.
April 14, 2015 /PRNewswire-USNewswire/ -- PennFuture today issued an updated version of its Fossil Fuel Subsidy Report, which indicates that the dollar amount of subsidies to the highly-profitable, mature fossil fuel industry continues to balloon, having now reached $3.