From a development perspective, subsidies are used:

(a) to ensure the transfer of income from one group or sector to another;

(b) to encourage the adoption of certain techniques in preference to others;

(c) to increase the production of certain goods to which the State gives higher priority;

(d) to reduce consumer prices by lowering production costs;

(e) to provide producers with a higher income than the market would allow;

(f) to promote the exploitation of resources where private initiative or private resources are limited;

(g) to produce a demonstration effect and thus stimulate private investment.

(h) Finally, subsidies are often used as an instrument of financial policy to stabilize and promote employment.

Government subsidies are necessary but also create in-balance in an economy. I.e. One company is favored as opposed to the rest of the industry. Many years ago Toyota paid transfer price tax penalty in US and Japanese Government supported the company. This leads to unequal distribution of wealth in a country. Also, corruption leads the same consequences in an economy.

Dr. Djeban Koffi Mouroufie Emmanuel Thanks for your insightful contribution. Well appreciated!!!

Economic system is backbone to the economic development of the nation's across the globe. Government subsidies are essential but it will affect economy. unequal distribution of wealth, corruption and freebies will also leads to get in- balance of economy.

merci à vous

Prof. Cenap Ilter Thanks for your apt comment. My best regards!!!

Governments (especially developing countries) often use “subsidies“ as a tool to attract or increase their vote bank at the cost of loans borrowed from IMF and World Bank.

Dr. Tanveer Ahmed Thanks for your apt comment. Best regards!!!

Subsidies can be beneficial to nations by:

1. Encourage the consumption of a common necessity at a low price

2. Stimulate the production of certain goods and services that are necessary, however, not very accessible (expensive).

On the other hand, subsidies can harm nations to the extent that:

1. They can discourage investment in other areas to the detriment of the subsidized one.

2. Subsidies can only be used as political instruments to capture electoral votes and, when withdrawn, can create social instabilities

Subsidies act as a motivational force to the potential entrepreneur to start their venture, and Govt. may get balanced regional development.

Redy Cassolongo Thanks for your insightful contribution. Well appreciated!!!

Subsidies by government in a developing nation with tendency of corruption will drive up prices and lead to lower standard of living. Government responsibilities to invest on capital spending will also be impeded. In a developing nation with little or no corruption tendency, it will provide healthy competition at lower prices, thereby increases standard of living.

Aliyu Ahmed Alhaji Thanks for your unique perspective on the subject matter. Best regards!!!

a government measure like a subsidy improves welfare. an efficient subsidy would correct a market failure, bringing social and private costs and benefits

It depends on both structure of country's macroeconomic and type of subsidies i.e. general or targeted. In most of the cases targeted subsidies prove beneficial if push demand side or encourage supply side, however it intensity depends on country's financial space.

Saad Sabah Saleh Thanks for your apt comment. My best regards!!!

Prof. Mirajul Haq Thanks for your candid perspective on the subject matter. Well appreciated!!!

Pros:

- Encourages growth: Subsidies can encourage growth in a particular industry or sector by providing financial support to businesses that might otherwise struggle to compete with foreign companies or other industries.

- Job creation: Subsidies can help create jobs in certain industries, particularly in areas that are struggling economically.

- Promotes innovation: Subsidies can help fund research and development, which can lead to innovations that improve efficiency and competitiveness.

- Protects national interests: Subsidies can be used to protect national interests, such as ensuring a stable food supply or maintaining a domestic energy industry.

Cons:

- Distortion of market forces: Subsidies can distort market forces and lead to inefficiencies. For example, if a government provides a subsidy to a particular industry, that industry may become too reliant on the subsidy and fail to innovate or become competitive on its own.

- Cost to taxpayers: Subsidies are often funded by taxpayers, which can lead to resentment if those taxpayers do not see tangible benefits from the subsidies.

- Risk of corruption: Subsidies can be subject to corruption and cronyism, with the government providing subsidies to businesses with political connections rather than those that are most deserving.

- Trade disputes: Subsidies can lead to trade disputes with other countries, particularly if those countries feel that the subsidies give domestic businesses an unfair advantage.

https://corporatefinanceinstitute.com/resources/economics/subsidy/

The above link might help aswell...

If an economy running with huge fiscal gap (budget deficit), in such case provision of general subsidies pose negative consequences like debt trap. The only option in such case is targeted subsidies, especially those encourage economic growth. However, in economies where the government have financial space, the provision of subsidies should pose positive impact on welfare.

Veronica Chileshe Your responses are highly informative as well as insightful. Thanks and best regards!!!

But what happend is , taxi drivers illegal manipulate price per KM. They are being benefited two times. The subsidy could have been used to raise poor of the poor. The public fund is simply being embezzled by illegals.

Government subsidies would be very damaging practice if not managed closely. For instance in Ethiopia the federal government subsidies taxi fuel. That means huge non capital budget has been allocated

Veronica Chileshe Many thanks for your insightful contributions. Best regards!!!