Subsidies (of lat. subvenire = to assistance come) are financial assistance without direct return, that are carried out by national institutions to private households or to private enterprises. A policy, which intervenes to larger extent with subsidies in the market, is called subsidyism.

No uniform definition

The above definition corresponds approximately to that in "§ 12 of stability and growth law. There is however no generally obligatory and/or recognized definition its that is to be regarded as subsidy. In the political economy a rather far term of the subsidy is taken as a basis predominantly, which also tax preferences and fee reductions or - releases and social security benefits covers. In the political discussion different subsidy terms are often made the instrument of the argumentation, what corresponds to the requirement of political probity only if the respective argumentation basis is revealed and justified.

In the criminal use the subsidy in the facts of the subsidy fraud becomes as achievement from public means, which is granted after federation or federal state law (or by the right of the European community) at enterprises or enterprises without market-moderate return or which promotion of the economy is to serve ("§ 264 exp. 7 StGB).

In kind 87 EEC contract is regulated the aid prohibition after European right.

Kinds of subsidy

• Subsidies ith e. S. (direct subsidies, financial assistances): Financial allowances to private enterprises
  • Subsidy (given)
  • Credit (must be paid back)
  • Endorsement (e.g. State stands as a defiency guarantee in)
• Subsidies in the broader sense (indirect subsidies; Reduction of the demand)
  • Remission of tax, tax exemption, tax reduction, fiscal privilege
  • Exemptions from duty (= tax exemption)
  • Reimbursements (renouncement/refunding, example: Agrarian Diesel reimbursement with that it around a repayment of oil taxes already paid acts)
  • Refunding (e.g. production and export refunding from the range of the agricultural commodities market orders)
  • Other deliveries (renouncement)

According to the objective 3 kinds can be differentiated by subsidies:

• Promotion subsidies: Promotion of (e.g.) enterprise reestablishments
• Adjustment subsidies: Simplification of adjustment processes, to which enterprises can be exposed
• Preservation subsidies: Preservation of economic, cultural and nationalcultural structures, for example in the agriculture and in the mining industry.

According to the method of the subsidization can be differentiated:

• Financial assistances: The subsidy receiver receives cash payments, if certain conditions are present.
• Tax reductions and tax exemptions: The subsidy receiver must pay certain taxes only to a reduced control item or at all, if certain conditions are present.
• Credit reducing: The subsidy receiver receives credits for certain purposes from banks under public influence, whose credit interests lie below the usual market.
• Assumption of external costs: External cost caused by the subsidy receiver are borne by the public. This aspect plays particularly in the environmental policy a role.

Other order-political interferences of the state (as for example national price determinations by the renewable energy law) are not designated than subsidies.

Evaluation

• Income: Subsidies support incomes or production.

• Interference into the market happening: By subsidies market price can be lowered. If uneconomic enterprises are subsidized to their preservation, the entire offer at the market becomes (shift of the offer curve to the right down), than it in the free economy would be larger and therefore sinks the market price. The subsidies intervene thus in the natural market happening and bring it from the equilibrium. Net welfare losses develop. Economically working enterprises are discouraged, because they along-finance their uneconomic competitors over taxes. Subsidy takers do not have incentive for being economical because they get money anyway. Profits of economically working enterprises are diminished by the sunk market price and the subsidy need for the preservation of anyway uneconomic enterprises at the market is increased. Since the not subsidized enterprises cannot offer for the sunk price or only less, jobs are painted. However jobs in subsidized enterprises are received.

• Political purpose: By subsidies a politically desired purpose can be promoted. (Political purpose does not mean naturally necessarily that it would be generally desired.)

• Location: National subsidized enterprises have advantages in the international competition.

• Drift: National subsidized enterprises do not get an incentive their location abroad to shift.

• Verschwendung: Enterprises will alive be held, will not be wished by subsidies to their products by the market (more). Tax fundses are wasted.

• Modernization

• Misguided policy: Often subsidies are continued to pay, if the original political purpose is no longer given (e.g. Subsidies for housebuilding, while dwellings are torn off at the same time because of empty conditions, which is likewise subsidized under the designation retreating longwall system).

• Assumption of external costs: External costs caused by the subsidy receiver or its any bankruptcy are carried by the public (e.g. Occupation companies), profits however denationalizes. This aspect plays also in the environmental policy a role. The circle of the taxpayers does not correspond to the circle of the beneficiaries. This offends against the principle of the fiscal equivalence.

• Reforms: In the course of the reformation of the welfare state national funds must be saved, sole responsibility also by enterprises are called in.

• Globalization: Enterprises, which move away to other locations, do not pay received subsidies back.

• Maladministration ratio: A substantial quantity of the taxpayers applied subsidy means does not achieve the projected goal, because the assignment bureaucracy is deceived over being present the conditions for promotion, inefficiently works or under political influence inappropriate decisions makes.

• Height: A problem represents frequently the statement the optimal height of the subsidies.

• Lobbyism: Lobbies provide unjustified payments.

Legal problem

The interference into the market happening, which is caused by subsidies, specified under the versus arguments, becomes the legal problem if the free trade is legally secured, as it is within the European union and between the Contracting States of the world trade union (World Trade Organization) the case. Therefore article 87 contains the EEC contract a fundamental prohibition of subsidies (in the linguistic usage of the European union: Aids), which is broken through however by a set of exception facts (European aid right). If a member state grants subsidies, which contrary-run this prohibition, the European commission intervenes. Within the world trade organization the "“convention over subsidies and compensation measures"” (Official Journal of the European communities 1994 No. L 336 P. 156) limits the validity of subsidies including fiscal subsidies strongly. Both within the European community as well as between the Contracting States of the world trade organization it comes frequently to conflicts over export subsidies, which are granted by individual states, in order to provide for their domestic economy of competition advantages. Thereby such export subsidies, which are contained in tax laws, form a special case.

Further criteria

• Apart from subsidies unequal legal pre and deliveries on an existing (increasingly global) market represent an interference into the market happening.
• With some today "“subsidies so mentioned"” (those originally a reconciliation for legally granted requirements "“of the public"” to the basiclegally protected "“property"” represented) the administrative control expenditure exceeds by far what arrives today with the "“subsidy receiver"”.

Subsidy report of the Federal Government

The Federal Government is legally committed to report in the distance of two years on the subsidies of the federation to the Bundestag. The argument around the term "“subsidy"” is to wieder.19.Subventionsbericht of the Federal Government also there from the year 2003 (pdf file)

See also

• Portal: Economics
• Transverse subsidy
• HOLE
• World Trade Organization
• Advancement programs of the European Union
• Export refunding
• meritorische goods
• Wind dog principle
• Watering can principle
• Lawn mower principle
• Promotion request
• Public Social private Partnership

Articles in category "Subsidy"

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