Difference Between Taxes and Subsidies


Subsidies are benefits (e.g. direct cash benefits, tax reductions) that the state grants to a certain group of recipients outside the state (e.g. farms) without market-economy consideration. Subsidies to private households are also known as transfers.

(Subsidy, bounty) One-off or ongoing assistance granted to the corporate sector by the state or public corporations is called subsidies (in a broader sense this also includes transfer payments to private households, e.g. home ownership allowances). The most frequently used types of subsidy include the maintenance subsidy (e.g. agriculture, mining), the education subsidy (promotion of new economic sectors) and the export subsidy. Subsidies can also be granted indirectly (e.g. via tax relief or tax deferrals (e.g. + special depreciation) or by subsidizing upstream production stages. According to the EC Treaty, subsidies are subject to restrictions (Art. 92.93 ECV).

One-off or ongoing aid granted by the state or public bodies to individual companies or special branches of the economy to support and stabilize them. The most frequently used types of subsidy include the maintenance subsidy (e.g. agriculture, mining), the education subsidy (promotion of new economic sectors) and the export subsidy (financing of exports). Subsidies can also be granted indirectly (for example through tax breaks) or by subsidizing upstream production stages. In the sense of the General Agreement on Tariffs and Trade (GATT), they are one of the tariff barriers to trade in addition to tariffs. According to the EC Treaty, they are subject to restrictions (Art. 92, 93 EC Treaty).

are services provided by the public sector to companies in order to achieve a specific purpose in the general interest. They take place without any consideration from the company to the state. Since they represent an interference in the free market balancing of the economy, they are to be granted according to § 12 of the - Law for the Promotion of the Stability and Growth of the Economy in such a way that they do not contradict the aims of the magic square. Every two years the federal government has to submit a subsidy report that provides information on the amount and changes in such funds. According to the purpose of the granting of subsidies, a distinction is made between maintenance subsidies, adaptation subsidies (adaptation of businesses or branches of industry to new conditions) and promotion subsidies (in particular to increase productivity in the economy).

In socialist economics: Grant from public funds without economic consideration to promote the economy, mostly to companies in certain industries and regions.

Subsidies are national support services for the domestic industry with the aim of giving it a more favorable competitive position compared to foreign competitors. A distinction is made between direct subsidies and indirect subsidies. The former are characterized by a direct allocation of benefits, while the latter go beyond that and include, for example, subsidized loans, state equity investments or tax breaks.

This subsidization is important in an international company insofar as it may be possible to carry out an international mixed calculation of prices in which individual countries are subsidized by others. Eilenberger (1987, Subsidies 271) distinguishes three types of subsidies:

- Subsidies for a foreign basic unit in country A by domicile country A

- Subsidies for a foreign basic unit in country A by domicile country B of the top unit

- Subsidies through preferential conditions of supranational banks and / or regional development funds of a foreign basic unit in country A.

In principle, all of these types of subsidization provide an international, subsidized company with external advantages. Both the promotion of exports (export subsidization) and the subsidization of the domestic production of import-competing goods are instruments of protectionist foreign trade policy (protectionism) (cf. Dieckheuer, 1998, Subsidies 476ff.). For this reason, a subsidy code was agreed on an international level as early as 1980 as part of the Tokyo round of GATT negotiations (see Yük-sel, 2001, Subsidies 2251.), which is annexed to the GATT (General Agreement on Tariffs and Trade) is.

partial benefits (financial aid, tax breaks), which a. Public finance service providers are granted to a recipient outside the state administration (usually a company) for the fulfillment of certain public purposes without market-economy consideration. The term, which is not undisputed in science and politics, is already problematic insofar as the rule situation must be unequivocally determined in order to delimit the partial exception from the predominant norm. It is also necessary to clarify whether the institutions located between the state and the market (e.g. special funds, Parafiski) are to be regarded as service providers or service recipients; Only the financial equalization within the state economy remains unconsidered from the outset. In addition, it should be remembered that instead of a consideration i. d. As a rule, the fulfillment of conditions of receipt or use is required. Ultimately, the intended purpose turns out to be less clear-cut when general state services are only provided by a few, supposedly a small one. On the other hand, many beneficiaries of the district are availed of. Subsidies have the effect of lowering costs or increasing revenues for the beneficiary companies and thus create incentives for increased use of factors and increased production. In this sense, subsidies can be used to internalize external earnings, to develop new technologies or to reduce foreign dependency in sensitive areas. For socio-political reasons, subsidies serve to maintain jobs that are at risk due to structural changes (e.g. coal mining, shipbuilding industry). For reasons of distribution policy, subsidies are also used to favor the buyers of products through lower sales prices. This is the case, for example, in transport and residential use. The criticism of subsidies mainly concerns: (1) the loss of allocation efficiency, since subsidies motivated by distribution policy falsify the price mechanism and thus prevent factors from migrating to areas of higher productivity or from being offered more cost-effective products; (2) their lack of accuracy; because the only limited controllability of the subsidy effects can lead to the subsidy destination (tax destination) only being favored with a (possibly small) part of a given subsidy amount; (3) The lack of uniformity, which is primarily expressed in the fact that certain industries have to cope with structural change as a market adjustment task that has to be solved themselves (retail, textile industry), while others are supported to a large extent for decades (agriculture, mining, shipbuilding). The definition of subsidies as transfer payments to companies is instrument-related. In addition to these financial aids, a comprehensive concept of subsidies would have to include above all tax concessions, but also infrastructure and procurement subsidies, interest rate reductions and regulations (e.g. minimum prices). In the subsidy report of the federal government, therefore, not only the financial aid but also the tax breaks are shown. In addition, specific social benefits (rent subsidies, savings subsidies) to private households are included. This expanded definition is mostly referred to when discussing the amount and reduction of subsidies. Literature: Andel, N., Finanzwissenschaft, 2nd ed., Tübingen 1990, p. 250 ff.

Economic policy instrument; Direct monetary payments (financial allocation) or indirect monetary payments by the state (tax relief) to companies (and also households) without a market economy in return (market economy) linked to conditions of receipt, behavior or use.

Direct and indirect financial support from the state to support sectors that are disadvantaged in terms of competition policy but essential for existence (e.g. shipping, mining, agriculture). Subsidies are i. d. Usually only granted on request.
Direct subsidies are government grants (subsidy payments), indirect subsidies are e.g. B. in the form of reduced tax and / or duty rates.
Criticism of the subsidization of individual industries:
? Intervention in the (free) market mechanism;
? Hindrance of the adaptation of the economy to changed or changing economic conditions with the consequence of misallocations;
? Risk of abuse of state economic power.

Assets Donation by a legal entity under public law to a private entrepreneur for a public purpose without market consideration. Subsidies are an instrument of state economic control. They disrupt undistorted competition in international trade by artificially making goods cheaper. In any case, subsidies require a special legal basis if they necessarily burden a third party or if the guarantee area of ​​a fundamental right is specifically affected. The improper use of subsidies is punished as subsidy fraud.

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