subsidy

The Columbia Encyclopedia, 6th ed.

subsidy

subsidy, financial assistance granted by a government or philanthropic foundation to a person or association for the purpose of promoting an enterprise considered beneficial to the public welfare. Subsidies were used in England in the later Middle Ages, when Parliament granted funds to the king to augment or replace customs and other taxes collected by royal prerogative; such early subsidies later became the means by which the power of taxation was taken from the king and lodged in Parliament. At first a nationwide levy, it became (in the reign of Charles II) a land tax levied annually without the intervention of a parliamentary vote. In France the king was able to retain his control and acquire financial powers that made him independent of any subsidy granted by the States-General. The term subsidy has had widely varied usage in the 20th cent. Subsidies may be granted to keep prices low, to maintain incomes, or to preserve employment. They are most important as grants to private corporations for performing some public service, such as to shipping companies and airlines for carrying the mail or to railroads for maintaining passenger service. These are often required where a necessary public service, particularly one that might otherwise not be profitable, is granted funds to remain in operation. In the United States, the National Railroad Passenger Corporation (Amtrak) receives federal subsidies for its intercity railway network. American cities have frequently subsidized transit companies to induce them to provide metropolitan transportation facilities for the public. Other commonly subsidized enterprises include agriculture (see agricultural subsidies), business expansion, and housing and regional development. In the United States, 5 million households received housing assistance in 1998. Medical and educational institutions are among the largest recipients of subsidies (see foundation); in 1997, for instance, federal spending in the United States paid 46% of national medical costs. Subsidies have also been granted by one country to another country to aid it in pursuing a war effort, to gain its goodwill, or to help stabilize its economy. Very similar to a subsidy is a bounty, except that it usually takes the form of a per-unit premium or reward for a service already performed.

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