A payment by the government to consumers or producers which makes the factor cost received by producers greater than the market price charged by producers. Subsidies may be given on grounds of income distribution, to improve the incomes of producers or consumers. They are not usually efficient for either purpose: even goods consumed heavily by the poor, such as rice in India, are also consumed by the better-off, so that a lot of the benefit of a subsidy goes to those who do not need it. Similarly, farm subsidies benefit large rich farmers more than small poor ones. Export subsidies may be paid to increase exports in order to improve the balance of payments.

See also:

export subsidy, farm subsidies, and food subsidies

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