In economics, a payment from the government that lowers a producer’s cost is called a subsidy.
A subsidy may be paid directly to producers, given to consumers, or delivered through tax credits, loans, and other financial support. By lowering the effective cost of producing or purchasing a good, it can increase the quantity supplied or demanded.
Governments use subsidies for many purposes, including supporting agriculture, encouraging renewable energy, protecting strategic industries, and expanding access to education or healthcare. Their effects depend on how the program is designed and whether the benefit reaches producers, consumers, or both.
Subsidies require public funding and can distort market incentives. They may also create government costs, encourage overproduction, or benefit established firms more than intended. A subsidy is different from a tariff: a tariff taxes imports, while a subsidy provides financial support. Economists often evaluate subsidies by comparing their social benefits with fiscal costs and possible efficiency losses.