How Government Subsidies Hurt Economic Growth. Research Paper

Research Paper
Mathematics and Economists
Name
Institution
Course
Date
RESEARCH PAPER
Abstract
Government subsidy means that a government pays part of the cost. Subsidies are very beneficial to businesses, individuals, and institutions. Government subsidy removes a certain type of burden and it is termed to be in the overall interest of the public because it promotes economic policies and social, good. Government subsidies can be in the form of tax reduction or cash payment. Sometimes subsidies support the economy of a country by assisting some of the industries that are struggling. Subsidies also support new developments in the economy by making funds available to different sectors in the economy. In the United States, there are two common categories of individual subsidies. They include unemployment benefits and payments of welfare. Additionally, the Affordable Care Act in the United States makes certain families in America Eligible for healthcare subsidies.
Existing evidence claims that government subsides stimulates the growth of businesses and the economy. However, most studies suggest that government subsidies increase expenditure as a result of increased wages. Although policymakers will always try to argue on the need for subsidies in the economy, these programs distort the economy in the long run. In case the government will intervene all the subsidized firms may get an unjust competitive advantage over companies that do not get a government subsidy. Additionally, policymakers will always pick the winners and the losers in the economy instead of the market itself. The case of government subsidy on the prices of gasoline in Venezuela is a perfect example of how government subsidies can harm the economy. This paper will examine how government subsidies hurt the economy in terms of employment, demand, and supply of goods, tax revenue, and the prices of commodities. The paper concludes that government subsidies have negative effects on the growth of the economy of any nation.
Introduction
In developed and developing countries, the government has adopted a wide range of policies that trigger economic growth. These policies include tax incentives and government grants. A subsidy means that the government is part of a certain payment or cost. For example, the government can decide to give farmers a subsidy of $20 for every kilo of carrots. In such a scenario this type of approach by the government will make the supply curve shift to the right while the demand for goods will increase because of low prices. However, government subsidies have a lot of disadvantages because sometimes it can be very hard for the government to raise a significant amount of taxable income. This means that people will be taxed more than they can produce economically. Through government subsidies, producers always set high prices for their commodities. This makes the economy less competitive because goods are extremely expensive for consumers. Additionally. Government subsidies reduce the incentive for some companies to reduce costs. While government subsidies assist consumers to purchase goods at low prices, there are a lot of disadvantages government subsidies have on the economy.
How Government Subsidies Hurt Economic G...