Government Subsidies And Government Intervention

1367 Words6 Pages

5TH MARCH 2018

Government subsidies include financial aid. The government extends to the market economy to promote economic and social policy. The subsidies can be tax breaks, interest-free loans and rent rebates among many others. People argue that subsidies lead to increased taxation to fund these subsidies, but there are different ways of funding subsidies such as taxing more goods and services with negative externalities and leap the benefits including boosting of some industries, correction of externalities, and regulation of the monopoly of power. Government subsidies boost some industries by increasing the demand and supply
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Subsidies promote positive externalities and discourage negative externalities. In a free market, there is under consumption of goods and services with positive externalities since individuals ignore the external benefits of consuming some products and service. For instance, education is a service that offers positive externalities since gaining knowledge and skills through training enables one to get employment. This benefits other people in the community as it reduces the crime rates and also the government can get more revenue from tax and pay fewer unemployment benefits. Therefore, the government can use this revenues and savings from paying fewer unemployment benefits to provide other goods and services that benefit society. Thus, subsidies encourage the consumption of merit goods and services. Also, the free market does not offer socially efficient outcome in the existence of externalities in production and consumption. For instance, companies that maximize profits ignore the external costs of pollutions through their production process leading to social welfare. Therefore, the government may subsidize companies that are using environmentally friendly production process in their operations thereby encouraging all companies to follow suit thus tackling the negative externalities as companies whose production process leads to external externalities will shift to using environmentally friendly…show more content…
Government subsidies help some industries that are on the decline by increasing demand and supply of their products and services. Correct externalities such as grants promote positive externalities and discourage negative externalities and regulate the monopoly of power by encouraging investors to start a business and thereby creating competition thereby protecting the consumers from the exploitative nature of monopolistic companies. Taxing taxpayers is the efficient way to raise money to fund subsidies, but the government can subsidize businesses by taxing more the goods and services with negative

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