Campus Sustainability Office

Perverse subsidies

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In general, subsidies are intended to help encourage new economic development, support industries that may be in need of a boost, or support those that contribute basic goods (like food) in order to keep prices affordable. In this way, subsidies seem to be good for society. Unfortunately this logic can be used to push them too far. Supporting industries that cannot support themselves simply because they are too influential is unsustainable. In a way it is similar to enabling a friend to continue self-destructive behaviors-and similarly unhealthy.

Subsidies that support industries that generate high negative 'spillover' costs (externalities), causing unacceptable hardships for people or significant environmental degradation are known as perverse subsidies.  Although subsidies can be effective without generating negative costs, it is important for policy makers to be aware of all of the impacts of subsidies including the additional negative consequences. Citizens should also be aware of how subsidies and tax incentives are being used, what their true costs and benefits are, how they may produce market failures, and how they shape and distort the economic landscape.

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