Legal Definitions - subsidy

A subsidy is a form of financial assistance or support, typically provided by a government or public body, to an individual, business, or organization. The purpose of a subsidy is usually to promote an economic or social policy, encourage a particular activity, or keep prices low for consumers.

Subsidies can be direct, such as cash payments, or indirect, such as tax breaks, low-interest loans, or the provision of goods and services at reduced costs. In international trade, a subsidy from a foreign government that benefits its exporters can sometimes be challenged by importing countries.

• Example 1 (Domestic Economic Development): A national government offers significant tax credits to companies that invest in research and development for renewable energy technologies within the country's borders.

  This illustrates a subsidy because the government is providing an indirect financial incentive (a tax break) to encourage specific businesses to engage in an activity (renewable energy R&D) that is considered beneficial for the public interest and economic growth.

• Example 2 (International Trade): A foreign country's government provides its domestic airline manufacturers with raw materials, such as aluminum and specialized alloys, at prices significantly below the global market rate.

  This is a subsidy because the foreign government is offering an indirect financial benefit (below-market raw materials) to its manufacturers. This could give these manufacturers an unfair cost advantage when exporting airplanes to other countries, potentially making their products cheaper than those from unsubsidized competitors.

• Example 3 (Social Welfare/Public Service): A municipal government provides annual grants to the local public library system to ensure that all residents have free access to books, internet, and educational programs, regardless of their income.

  Here, the city government is directly providing financial assistance (cash grants) to a public service organization (the library) to support its operations and ensure a vital community resource remains accessible and affordable for all citizens, aligning with a social policy goal.