Answer to Question #204319 in Economics for Agcobile

Question

What are welfare payments or consumer subsidies

Answer 1

Subsidy (from Lat. Subsidium - help, support) - payments provided at the expense of the state or local budget, as well as payments from special funds for legal entities and individuals, local authorities, and other states.

The main properties of the subsidy:

gratuitous transfer of funds (a refund is possible);

targeted character;

co-financing (on terms of equity financing).

Thus, the subsidy is distinguished by the fact that:

subsidies are allocated for strictly defined purposes (funds allocated for a specific purpose cannot be spent on anything else);

funds are provided free of charge (that is, the issuance of subsidies does not provide for the return of funds or interest for using the subsidy. A return is required only if the money was spent not on the allocated needs;

the subsidy is a co-financing instrument (that is, it does not completely “close” one or another financial “hole”, but acts as additional financing).

payments can be made not only from the state budget, but also from the regional budget.

Types of subsidies

Government grants can be classified as follows:

1. Subsidizing depending on the object-recipient of financing:

subsidizing the budget of one level by the budget of another level;

subsidizing individuals and legal entities.

2. Subsidizing depending on the form of providing financial assistance:

Direct subsidies (direct subsidies); and

Indirect subsidies (indirect subsidies).

Direct subsidies

Direct subsidies are usually used to finance fundamental research and development work (grants), or to introduce new technologies into production and to retrain personnel.

That is, direct subsidies are aimed at financing science, retraining personnel, modernizing production and other areas that are important for the functioning of the state.

Indirect subsidies

Indirect subsidies are provided by the state using tax and monetary policy funds.

The state provides incentives for taxing the profits of companies, issues loans to companies on preferential terms, carries out refunds of direct taxes and customs duties.

That is, indirect subsidies are not an explicit form of financing, but indirect: through the provision of tax incentives, return of paid duties, lending on preferential terms, etc.