What does the term 'subsidy' refer to?

The term 'subsidy' specifically refers to financial support provided by the government to individuals, businesses, or sectors to promote economic activity or achieve specific social outcomes. Subsidies can take various forms, such as cash payments, tax breaks, or indirect support through services or infrastructure. By offering subsidies, governments aim to lower the cost of goods or services, stimulate demand, support industries, or encourage behaviors that align with public interests, such as environmental sustainability or affordable housing.

Understanding the nature of subsidies helps clarify why other terms, like tax incentives, grants, and loans, do not fit the definition as precisely. Tax incentives might reduce the tax burden but do not constitute direct financial support. Similarly, while grants for educational purposes are a form of government financial aid, they are simply a subset of subsidies focused exclusively on educational funding. Loans for construction projects involve repayment obligations, distinguishing them from the non-repayable nature of typical subsidies.