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Perverse subsidies

Subsidies in general are intended to help foster economic development and/or support emerging industries or existing industries that may be in need of help, or to support industries that contribute basic goods, such as food, to a wide cross section of society at affordable prices. In this way, subsidies should be good for society. Unfortunately, subsidies don't always work this way.
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(CC Image (right) of U.S. crop subsidies by Arichnad (Own work) [CC-BY-SA-3.0 (http://creativecommons.org/licenses/by-sa/3.0) or GFDL (http://www.gnu.org/copyleft/fdl.html)], via Wikimedia Commons).

Subsidies that support industries that generate high negative externalized costs, or "externalities," that cause 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 unintended negative consequences. Citizens must also be aware of how subsidies and tax incentives are being used, what their true costs are, how they may produce market failures, and how they shape and distort the economic landscape.

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by Sorby, Coty E last modified Feb 17, 2014 02:14 PM

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