Taxes and Subsidies

9 Key excerpts on "Taxes and Subsidies"

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  Spending to Win

  Political Institutions, Economic Geography, and Government Subsidies

  • Stephanie J. Rickard, Stephanie J. Rickard(Authors)
  • 2018(Publication Date)
  • Cambridge University Press

    (Publisher)

  Measuring Particularistic Economic Policy 65 What Are Subsidies? Disagreement abounds about the precise definition of subsidies. “The word subsidy derives from the Latin word subsidium, which means ‘help, support, or assistance’ and in medieval times referred to a payment made to the king” (Fryde 1983, Steenblik 2017). 2 Today, subsidies cover a wide range of government policies. Subsidies include: cash grants, tax breaks, loans at below-market interest rates, loan guarantees, capital injections, guaranteed excessive rates of profit, below- cost or free inputs including land and power, and purchasing goods from firms at inflated prices. 3 The breadth of possible policy options generates confusion about exactly what constitutes a subsidy. The World Trade Organization provides one of the only internationally agreed upon definitions, which delineates a subsidy as a financial contribution by a government that confers a benefit on its recipients (WTO 2006). I adopt this definition. Just as many definitions of subsidies exist, there is also a striking array of synonyms for subsidies. Frequently used terms include industry assistance, industrial policy, industrial strategy, corporate welfare, and government support programs. The European Union uses the term “state aid” to describe subsidies provided to producers by member state governments. Another increasingly common term is “economic incentive” (e.g. Jensen 2017), which typically refers to subsidies that take the form of a tax incentive. Tax incentives reduce companies’ tax burdens thereby allowing businesses to keep a larger share of their revenue. Quantifying tax incentives is notoriously difficult and few, if any, cross-nationally comparable measures of tax incentives exist. Like tax incentives, many other types of subsidies are also difficult to measure.

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  Stuck in the Middle

  Is Fiscal Policy Failing the Middle Class?

  • Antonio Estache, Danny Leipziger, Antonio Estache, Danny Leipziger(Authors)
  • 2009(Publication Date)
  • Brookings Institution Press

    (Publisher)

  S ubsidies are a potentially powerful tool to address concerns about income redistribution when the design of tax systems is ineffective and politically too difficult to alter to achieve fairness. The ability to target subsidies also makes them a potentially effective instrument to correct market failures. Because they are relatively low-cost instruments that can be used to support a wide range of targeted political objectives, subsidies pervade almost all dimen-sions of our lives. The obvious subsidies are the ones that make the newspapers and generate large public protests such as agriculture, fuel, transport, but there are many more than those making the headlines. At all stages of development, subsidies are everywhere. Although the monitoring of the fiscal costs of these subsidies tends to be quite imperfect, looking at the information available from international data-bases easily hints at their high costs. A recent survey conducted by the World Trade Organization (WTO) for its 2006 report on world trade suggests that trade-related subsidies represent at least 1.6 percent of GDP in developed economies, 1.7 percent in transition economies, and 0.6 percent in developing economies. 1 These figures are lower bounds, because they ignore all forms of indirect subsidies, such as tax or financing concessions, which are not accounted The Scope and Limits of Subsidies MARKUS GOLDSTEIN and ANTONIO ESTACHE 4 The authors thank Tara Bedi and Angeli Kirk for excellent research assistance. 1. WTO (2006). 75 76 markus goldstein and antonio estache for by standardized international reporting of national data. Even as lower bounds, these figures are a significant fiscal burden for any country. This high cost certainly contributes to the bad reputation of subsidies in many policy and academic circles. But there are additional reasons for the con-cern with the omnipresence of this instrument.

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  Housing, Individuals and the State

  The Morality of Government Intervention

  • Peter King(Author)
  • 2006(Publication Date)
  • Routledge

    (Publisher)

  This does not mean that social science has nothing to do, but rather that we should concern ourselves with what we can know and do, rather than trying to simplify hugely complex processes which are beyond us (Hayek, 1952, 1988). In terms of housing research, it implies that we should not vainly seek to understand the full complexity of housing phenomena, but rather seek to understand the limits to our understanding and therefore where the limits for policy prescription and government competence are. From this we can develop a role for individuals, institutions and the state, which is both sustainable and morally justified. A definition of subsidies The first issue is to develop a satisfactory definition of subsidy. Maclennan (1982) defines a subsidy as ‘a direct payment or price subsidy [ sic ] from central or local government to the individual’ (p. 241). Aughton and Malpass (1994) use a similar definition (but it is somewhat more useful in that it does not attempt to define a term by the term itself) when they state that a subsidy is ‘the difference between the price actually charged for an item and the price that it would fetch in a free market’ (p. 16). Whilst this gives a clear indication of what a subsidy does, it is perhaps not useful in that a free housing market has not been in existence for over eighty years. Indeed the sectors defined in Britain as social housing would not have existed at all without government intervention, and thus to talk of a relationship to the free market price is perhaps not that useful. Thus a definition of subsidy for the social rented sector would not have to rely on the notion of a market. Accordingly Black and Stafford (1988) define such a subsidy as ‘the difference between historical costs and actual rents’ (p. 51), whilst Aughton and Malpass (1994) define it as ‘the amount that is provided to make up the difference between the rents charged and the amount necessary to cover expenditure on the housing service’ (p. 16)

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  Battleground: Business

  [2 volumes]

  • Peg Thoms, Michael Walden(Authors)
  • 2007(Publication Date)
  • Greenwood

    (Publisher)

  Farmers, for example, may receive financial assistance when crop prices are low or crop yields are lowered due to drought, hail, or other unfavorable weather conditions. Governments sometimes subsidize large corporations such as auto or steel companies. Assistance may be direct, as in the case of a financial bailout, or it may be indirect, including tariffs and import quotas that limit do- mestic sales of competing goods from foreign countries. Quite often, a government subsidy is targeted on a specific business firm. State and local governments may attempt to lure a corporation to locate a manu- facturing facility within its borders by providing property tax holidays or other financial incentives. For example, South Carolina, Alabama, and other states have used tax breaks to induce foreign auto companies, including Toyota and Mercedes, to locate manufacturing facilities within their states. Similarly, local governments often subsidize the construction of sports facilities to lure sports teams. Similarly, large industries may induce the federal government to restrict com- petition from foreign firms producing similar products. Subsidies of this type include import tariffs on autos, steel, textile products, and agricultural products. An import tariff on autos, for example, means that Ford, General Motors, and other domestic auto producers can charge higher prices for their products in the United States. The federal government also subsidizes the export of products from the United States to other countries. For example, the export of agricultural prod- ucts has been subsidized for more than 50 years. The best known program, known as Public Law 480, was first enacted in 1954. The program was begun to reduce stocks of food that the government acquired through its farm subsidy programs. The program reduces the cost of U.S. food in foreign countries. Some of the food is sold to foreign buyers with long repayment periods at low inter- est rates, a monetary subsidy.

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  The Economics You Need

  • Enrico Colombatto(Author)
  • 2016(Publication Date)
  • Taylor & Francis

    (Publisher)

  6 Taxation and regulation

  DOI: 10.4324/9781315658988-7

  6.1 On the role of government

  Governments play a substantial role in today's economies. They try to stabilise the business cycle through monetary and fiscal policies, to intervene in regulating international trade and financial transactions, and to redistribute income to the benefit of the poor members of the community. Moreover, governments engage in restraining or prohibiting activities deemed contrary to the public interest; encouraging the supply of goods and services that the market process would otherwise produce in inadequate amounts; and delivering services that people wish to ban from the marketplace (for example, police, justice and defence).

  Since the analyses of the role, legitimacy, and effectiveness of government intervention are outside the scope of this book, we shall not investigate the merits of all these actions, nor shall we discuss whether governments keep their word. Rather, we take it for granted that government intervention exists, that most citizens believe it is desirable, and we focus on the tools that governments resort to in order to obtain their goals. We analyse taxation and regulation in this chapter, deferring to later parts of the book the study of monetary, fiscal and international matters. In particular, the next section presents a general overview of taxation; sections 6.3 to 6.9 examine the technical features of taxation and the extent to which it affects taxpayers’ welfare; sections 6.10 and 6.11 deal with regulation.

  6.2 On tax targeting, tax collecting and tax paying

  The world of taxation includes three key components: tax targeting, tax collecting and tax paying. Tax targeting relates to the economic activities/variables which the tax authorities consider as their goal: specific firms or industries (e.g., to rein in pollution), certain categories of consumption (e.g., to protect individuals’ health against their bad judgement), or some groups of individuals (e.g., for the sake of income redistribution).

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  Commitments and Flexibilities in the WTO Agreement on Subsidies and Countervailing Measures

  An Economically Informed Analysis

  • José Guilherme Moreno Caiado(Author)
  • 2019(Publication Date)
  • Cambridge University Press

    (Publisher)

  307. 64 Mankiw, Principles of Macroeconomics p. 886. 65 Hans W. Friederiszick, Lars-Hendrik Röller, and Vincent Verouden, “European State Aid Control: An Economic Framework” in Paolo Buccirossi (ed), Handbook of Antitrust Economics (Handbook of Antitrust Economics, The MIT Press 2008) p. 633. 66 Ibid. 3.3 rationale for use of subsidies by governments 79 in situations in which competition is “unlikely to produce efficient out- comes in terms of prices, outputs and use of resources.” 67 Subsidization might thus be construed as the rational action of bene- volent governments seeking to “improve the functioning of markets.” 68 Bhagwati and Ramaswami 69 for instance, as well as Johnson, 70 argue that a production subsidy is the most efficient tool of government interven- tion in the presence of domestic distortions, 71 those market conditions in which there is a difference “between the actual price and the socially optimal price.” 72 As noted by Bacchetta and Ruta, “this argument implies that, at least in the presence of domestic distortions, an international trade treaty should leave scope for flexibility to governments in their choice of production subsidies.” 73 There are various sources of market failure. The failure known as an externality is “the uncompensated impact of one person’s action on the well-being of a bystander (third party).” 74 Externalities occur when the action of a market player imposes positive or negative consequences, such as innovation spillover or pollution, 75 on other agents. A common 67 Ibid. p. 632. 68 Ibid. 69 A seminal paper in the issue of subsidies concludes, for example, that an optimum subsidy “is necessarily superior to any tariff when the distortion is domestic,” Jagdish Bhagwati and Vangal K Ramaswami, “Domestic Distortions, Tariffs and the Theory of Optimum Subsidy” (1963) The Journal of Political Economy p.

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  Law as an Instrument of Economic Policy – Comparative and Critical Approaches

  • Terence Daintith(Author)
  • 2016(Publication Date)
  • De Gruyter

    (Publisher)

  VI. Description and Classification of Public Benefits An evaluation of the national inventories shows that subsidies and other public benefits can be classified as follows: A. Supporting and Easing Subsidies Subsidies are generally granted through the allowance of financial benefits to the recipient. However, the same effect can be achieved, if obligations otherwise borne by individual beneficiaries are removed or eased. This method is met with relatively frequently. In the area of energy policy, examples are the numerous tax privileges for energy saving measures, 26 in that of labour market policy exemp-tions from making redundancy payments (in the United Kingdom), 27 reduction of social security contributions in order to increase salaries up to the minimum wages (in France) 28 or permission to opt out of compulsory obligations in cases of crisis (in Italy). 29 Public assistance through easing subsidies can thus either be granted as an instrument to boost adjustment measures or as a means of socially motivated support. 24 H. Jarass, Regulation as an Instrument of Economic Policy, above at p. 85. 2 5 On the choice of this and other policy objectives see Daintith, above, at pp. 23-25. 26 See e.g. Law N o 368 of June 1978 (Investment Account Act) in Mortelmans, supra note 16, at p. 46; and Law (BGBl 1 878) of June 27, 1978 in Jarass, supra note 6, at p. 29. 2 7 See Finance Act 1981, and in particular the Inland Revenue Circular issued under the Act, in Bercusson, supra note 10 at p. 63. 28 See Youth Employment Act, Law N o 77-704, of July 5,1977 in Deforges, supra note 11, at pp. 6 and 7. 2 9 See Law of March 27, 1983 in Curran, supra note 12 at p. 63. Subsidies as an Instrument of Economic Policy 147 B. Primary and Secondary Subsidies Another possible distinction we might draw on the basis of the national inven-tories is one between primary and secondary subsidies.

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  Economics

  Theory and Practice

  • Patrick J. Welch, Gerry F. Welch(Authors)
  • 2016(Publication Date)
  • Wiley

    (Publisher)

  Crowding Out Occurs when borrowing by the federal government reduces borrowing by households and businesses. Summary 1. The two main categories of government expenditures are purchases of goods and services and transfer payments. Some government purchases are for public goods, which are provided for all of society and from which no one can be excluded. 2. Governments receive revenues from taxes and other sources, such as contributions for social insurance. The primary source of federal government revenue is the individual income tax. Taxes may be classified according to the relationship between the percentage of income taxed and the size of the income: A progressive tax has a direct relationship, a regressive tax has an inverse relationship, and the percentage stays the same for a proportional tax. 3. Tax reform sometimes occurs because of a need for additional government funding or for political reasons. A tax base is the thing on which a tax is levied, and the tax rate is the amount that is levied on the base. 4. Fiscal policy refers to changes in government expenditures and/or taxes for the purpose of influencing the levels of output, employment, or prices in the economy. Fiscal policy can be used to reduce unemployment by injecting more spending into the economy through increased government purchases, increased transfer payments, and/or decreased taxes. Demand‐pull inflation is reduced through decreased government purchases, decreased transfer payments, and/or increased taxes. 5. Fiscal policy is either discretionary or automatic. Discretionary fiscal policy is the deliberate adjustment of government purchases, transfers, and/or taxes by Congress to control unemployment or inflation. Automatic stabilization is the automatic change in some government expenditures, like transfer payments, and some taxes,

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  Energy Subsidies

  Lessons Learned in Assessing their Impact and Designing Policy Reforms

  • Anja von Moltke, Colin McKee, Trevor Morgan, Klaus Töpfer(Authors)
  • 2017(Publication Date)
  • Routledge

    (Publisher)

  Quantifying the different effects of subsidies, both costs and benefits, is even more difficult and subjective. A subsidy by its very nature involves a complex set of changes in economic resource allocation through its effect on costs and/or prices. These shifts inevitably have interrelated economic, social and environmental implications. Indeed, the reason why any of the subsidies described in the preceding chapters exist at all is to support some economic, social or environmental goal.

  Economic theory says that social welfare is maximised when the price of each good and service is determined by the intersection of producers’ willingness to supply and consumers’ willingness to pay (see Chapter 2 , Section 2.2 ). When price deviates from this point of static equilibrium, resource allocation is economically inefficient since the benefits to consumers from the last units of energy consumed are smaller than the costs involved in supplying the energy service.

  In practice, however, free markets in energy services left to their own devices do not work perfectly so that social welfare is not maximised. In particular, they do not take account of any social and environmental benefits and costs that might be associated with certain types of energy activity. So there is a justification for governments to intervene in energy markets in pursuit of environmental and social objectives and to fix any problems in the way those markets operate. Any subsidy can be justified if overall social welfare is increased, when the social gain or environmental improvement exceeds the economic cost. However, measuring these effects, especially the social and environmental costs and benefits, is extremely difficult.

  Energy markets can malfunction in various ways. A market is said to fail when it does not put a price on a ‘public good’: that is, a good or service that is freely accessible by everyone but which carries no explicit charge. Air is a classic example of a public good and one that directly concerns energy. Deterioration in air quality is said to be an external cost, because there is no market in the supply of air. Governments have a responsibility to intervene to protect air quality by regulating emissions from energy-related and other activities, since individual polluters would otherwise not pay for the environmental damage. Levying charges on polluting activities is one important way of making the polluter pay for that damage. This concept is known as the ‘polluter-pays principle’. In this way, external costs are internalised in the final price to consumers. A carbon tax, which has been introduced in a number of OECD countries, particularly in Europe, is an example of this approach.

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