Subsidies

• How can subsidies be justified (1)?

  • Helping poorer families with food and childcare costs, particularly during an economic crisis
  • Improved nutrition can lift labour productivity and reduce the long-term burden on health services
  • Encourage output and investment in fledgling sectors such as life sciences and renewable energy
  • Protect jobs in loss-making industries hit by recession and by external economic shocks
• How can subsidies be justified (2)?

  • Improve housing and transport affordability to improve geographical mobility of labour
  • Reduce the cost of training & employing workers
  • Encourage the arts and other cultural services whicy have social benefits
• What are the disadvantages of subsidies?

  • Producers can become “subsidy-dependent”
  • Subsidies can distort resource allocation
  • Subsidies can lead to excess production/surpluses
  • Environmental risks from excessive production
  • Government failure arising from political lobbying
  • Subsidies can be very excessive - taxpayers bear the cost