Subsidy - Revision history

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	<onlyinclude>A '''subsidy''' is a payment or [[tax abatement]] form the government to the buyer or seller of a good or service to encourage either its sale or purchase.</onlyinclude><ref>A. Goolsbee, S. Levitt and C. Syverson. ''Microeconomics''. New York: Worth Publishers, 2013, pp. 100.</ref> A subsidy is essentially the opposite of a tax, whereas a tax raises the price of a good or service, a subsidy lowers it. Subsidies are a form of [[fiscal incentive]] and are often discussed as a [[fiscal policy]] tool that governments can use to fight [[climate change]].		<onlyinclude>A '''subsidy''' is a payment or [[tax abatement]] form the government to the buyer or seller of a good or service to encourage either its sale or purchase.</onlyinclude><ref>A. Goolsbee, S. Levitt and C. Syverson. ''Microeconomics''. New York: Worth Publishers, 2013, pp. 100.</ref> A subsidy is essentially the opposite of a tax, whereas a tax raises the price of a good or service, a subsidy lowers it. Subsidies are a form of [[fiscal incentive]] and are often discussed as a [[fiscal policy]] tool that governments can use to fight [[climate change]].

	~~Assume~~ a government wants to reduce the dependence of their country on [[fossil fuel]], to encourage this, the government might give a subsidy to producers of [[solar panel]]s as their use reduces the amount of [[electricity]] households draw from the [[grid]] that is powered by [[coal]].<ref name=IPCC_SRREN> Verbruggen, A., W. Moomaw, J. Nyboer, 2011: Annex I: Glossary, Acronyms, Chemical Symbols and Preﬁxes. In IPCC Special Report on Renewable Energy Sources and Climate Change Mitigation [O. Edenhofer, R. Pichs- Madruga, Y. Sokona, K. Seyboth, P. Matschoss, S. Kadner, T. Zwickel, P. Eickemeier, G. Hansen, S. Schlömer, C. von Stechow (eds)], Cambridge University Press, Cambridge, United Kingdom and New York, NY, USA.</ref> If the government offers a 20% subsidy on the production of solar systems and the cost of producing a system of panels that can power the house is $20,000 then the production cost will be $16,000. In short, a subsidy lowers the price in order to increase [[supply]].		When a government wants to reduce the dependence of their country on [[fossil fuel]]s (for example), to encourage this, the government might give a subsidy to producers of [[solar panel]]s as their use reduces the amount of [[electricity]] households draw from the [[grid]] that is powered by [[coal]].<ref name=IPCC_SRREN> Verbruggen, A., W. Moomaw, J. Nyboer, 2011: Annex I: Glossary, Acronyms, Chemical Symbols and Preﬁxes. In IPCC Special Report on Renewable Energy Sources and Climate Change Mitigation [O. Edenhofer, R. Pichs- Madruga, Y. Sokona, K. Seyboth, P. Matschoss, S. Kadner, T. Zwickel, P. Eickemeier, G. Hansen, S. Schlömer, C. von Stechow (eds)], Cambridge University Press, Cambridge, United Kingdom and New York, NY, USA.</ref> If the government offers a 20% subsidy on the production of solar systems and the cost of producing a system of panels that can power the house is $20,000 then the production cost will be $16,000. In short, a subsidy lowers the price in order to increase [[supply]].

	==Effect of a Subsidy==		==Effect of a Subsidy==
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	==References==		==References==
	{{reflist}}		{{reflist}}
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	<onlyinclude>A '''subsidy''' is a payment or [[tax abatement]] form the government to the buyer or seller of a good or service to encourage either its sale or purchase.</onlyinclude><ref>A. Goolsbee, S. Levitt and C. Syverson. ''Microeconomics''. New York: Worth Publishers, 2013, pp. 100.</ref> A subsidy is essentially the opposite of a tax, whereas a tax raises the price of a good or service, a subsidy lowers it. Subsidies are a form of [[fiscal incentive]] and are often discussed as a [[fiscal policy]] tool that governments can use to fight [[climate change]].		<onlyinclude>A '''subsidy''' is a payment or [[tax abatement]] form the government to the buyer or seller of a good or service to encourage either its sale or purchase.</onlyinclude><ref>A. Goolsbee, S. Levitt and C. Syverson. ''Microeconomics''. New York: Worth Publishers, 2013, pp. 100.</ref> A subsidy is essentially the opposite of a tax, whereas a tax raises the price of a good or service, a subsidy lowers it. Subsidies are a form of [[fiscal incentive]] and are often discussed as a [[fiscal policy]] tool that governments can use to fight [[climate change]].

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	*The '''red triangle''' indicates the [[deadweight loss]] or inefficiency resulting from the subsidy as the cost of the subsidy decreases the overall surplus to both the consumer and producer.		*The '''red triangle''' indicates the [[deadweight loss]] or inefficiency resulting from the subsidy as the cost of the subsidy decreases the overall surplus to both the consumer and producer.

	Another form of a subsidy is a '''[[fiscal incentive \| tax incentive]]''' whereby governments offer a lower tax rate or a tax free period of time to encourage people or firms to act in a certain way.<ref>~~Investopedia~~. "~~Tax Incentive~~." [Online], Available: http://www.~~investopedia~~.com/~~terms~~/a/~~abatement~~.~~asp~~?ad=~~dirN~~&qo=~~investopediaSiteSearch&qsrc=0&o=40186~~ [Aug 21, 2016].</ref> For example, a city might offer a reduced property tax rate for homeowners who install solar panels or plant more trees on their property.		Another form of a subsidy is a '''[[fiscal incentive \| tax incentive]]''' whereby governments offer a lower tax rate or a tax free period of time to encourage people or firms to act in a certain way.<ref>J.Black, N. Hashimzade, and G. Myles. (2009) "Fiscal Policy." [Online], Available: http://www.oxfordreference.com/view/10.1093/acref/9780199237043.001.0001/acref-9780199237043-e-1214?rskey=Vd7okA&result=1, 2009 [Aug 22, 2016]</ref> For example, a city might offer a reduced property tax rate for homeowners who install solar panels or plant more trees on their property.

	World wide, subsidies for [[renewable energy]] sources are on the rise, signaling a shift towards socially efficient electrical production methods.<ref>IEA. ''World Energy Outlook 2015: Executive Summary''. Paris: OECD/IEA, 2015, pp. 6-7.</ref>		World wide, subsidies for [[renewable energy]] sources are on the rise, signaling a shift towards socially efficient electrical production methods.<ref>IEA. ''World Energy Outlook 2015: Executive Summary''. Paris: OECD/IEA, 2015, pp. 6-7.</ref>

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[[Category:Done 2016-04-30]]
<onlyinclude>A '''subsidy''' is a payment or [[tax abatement]] form the government to the buyer or seller of a good or service to encourage either its sale or purchase.</onlyinclude><ref>A. Goolsbee, S. Levitt and C. Syverson. ''Microeconomics''. New York: Worth Publishers, 2013, pp. 100.</ref> A subsidy is essentially the opposite of a tax, whereas a tax raises the price of a good or service, a subsidy lowers it. Subsidies are a form of [[fiscal incentive]] and are often discussed as a [[fiscal policy]] tool that governments can use to fight [[climate change]].

Assume a government wants to reduce the dependence of their country on [[fossil fuel]], to encourage this, the government might give a subsidy to producers of [[solar panel]]s as their use reduces the amount of [[electricity]] households draw from the [[grid]] that is powered by [[coal]].<ref name=IPCC_SRREN> Verbruggen, A., W. Moomaw, J. Nyboer, 2011: Annex I: Glossary, Acronyms, Chemical Symbols and Preﬁxes. In IPCC Special Report on Renewable Energy Sources and Climate Change Mitigation [O. Edenhofer, R. Pichs- Madruga, Y. Sokona, K. Seyboth, P. Matschoss, S. Kadner, T. Zwickel, P. Eickemeier, G. Hansen, S. Schlömer, C. von Stechow (eds)], Cambridge University Press, Cambridge, United Kingdom and New York, NY, USA.</ref> If the government offers a 20% subsidy on the production of solar systems and the cost of producing a system of panels that can power the house is $20,000 then the production cost will be $16,000. In short, a subsidy lowers the price in order to increase [[supply]].

==Effect of a Subsidy==

[[File:subsidy.png|450px|thumb|right|Figure 1. The effects of a subsidy on solar panels to encourage their use.<ref>Created internally by a member of the Energy Education team</ref>]]

This is the example above shown graphically:
*At '''Point A''' the market is in equilibrium, the price ('''P1''') is equal to the quantity supplied ('''Q1''').
*When the subsidy is introduced the price paid by the consumer will drop from '''P1''' to '''P2''' but the seller of the panels will still receive '''P1''' because the government pays the difference between '''P1''' and '''P2'''.
*The lower price stimulates an increased supply of panels as the subsidy lowers the cost of production.<ref>M. Parkin and R. Bade. ''Economics: Canada in the Global Environment''. Toronto: Pearson, 2013, pp. 140.</ref>
*The '''red triangle''' indicates the [[deadweight loss]] or inefficiency resulting from the subsidy as the cost of the subsidy decreases the overall surplus to both the consumer and producer.

Another form of a subsidy is a '''[[fiscal incentive | tax incentive]]''' whereby governments offer a lower tax rate or a tax free period of time to encourage people or firms to act in a certain way.<ref>Investopedia. "Tax Incentive." [Online], Available: http://www.investopedia.com/terms/a/abatement.asp?ad=dirN&qo=investopediaSiteSearch&qsrc=0&o=40186 [Aug 21, 2016].</ref> For example, a city might offer a reduced property tax rate for homeowners who install solar panels or plant more trees on their property.

World wide, subsidies for [[renewable energy]] sources are on the rise, signaling a shift towards socially efficient electrical production methods.<ref>IEA. ''World Energy Outlook 2015: Executive Summary''. Paris: OECD/IEA, 2015, pp. 6-7.</ref>

==See Also==
*[[Tax]]
*[[Pigouvian subsidy]]
*[[Pigouvian tax]]

==References==
{{reflist}}