Analysis of Subsidy




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Paper Outline

Subsidies: Rationales and Trade and Investment Distortions

        I.            Introduction

a.       Governments throughout the world have offered subsidies to increase investments and jobs, stimulate economically depressed regions, support domestic agriculture and prevent bankruptcies through bailouts.

b.      Subsidies alter price ratios that would otherwise result in a free, competitive marketplace.

c.       Foreign-based corporations may regard lower prices as unfair competition in international trade.

d.      Subsidies expand the supply of a product, and existing manufacturers of that product may consequently suffer reductions in output, employment and profits.

e.       Subsidies are implemented to pursue certain social objectives; thus, an intergovernmental pact that limits subsidies may diminish, rather than improve, the well being of signatories.

     II.            External Benefits of Investments and Job Creation

a.       Government Cost Savings

            i). Government expenditures may decrease if firms hire workers who would have otherwise been unemployed.

b.      On-the-Job Training

            i). Subsidies for retraining could help people learn new skills in an apprentice-type of training within a firm.

ii). Could it prevent unemployed people from remaining jobless?  Helping individuals acquire a job who wouldn’t have if the subsidies didn’t exist?

c.       Sharing of Government Costs

            i). Subsidies may increase the tax base.

ii). “New investment is often seen as a means of spreading government costs across new taxpayers.”  ??

d.      The Advancement of Productivity Growth

            i). How do investments in high-tech industries enhance the general level of scientific knowledge and skill, thereby assisting other firms and individuals in their adoption of new technology?

e.       Strengthening International Competitiveness

            i). How can a society’s international competitiveness be strengthened through the use of subsidies?

f.        Ambiguous Definition of Subsidies

            i).  Can one argue that tax concessions aimed at providing financial incentives for R&D also represent a form of subsidy?

  III.            Agricultural Subsidies

            i). Under (NAFTA) North American Free Trade Agreement, agricultural tariffs and import quotas were eliminated between the U.S. and Mexico.

            ii). U.S. subsidies are provided in the nation’s federal farm bill, so any U.S. subsidy reduction would require both the writing of a new farm bill and Congressional approval.

            iii). A measure known as the producer subsidy equivalent (PSE) is the amount that would need to be paid to farmers as compensation for the loss of income resulting from a cancellation of various subsidies.

            iv). Subsidy programs are structured so that the amount given to each farmer depends on market prices…  When market prices fall, the subsidy increases; and when prices rise, the subsidy falls.  The amount of subsidy may be continually changing.

  IV.            Conclusion

The outline is fine as a guide.  However, I do have some concerns.  I will list them below.

1. Make sure that you do not spend too much of the paper restating what the case study already states.  You need to focus on analyzing the case study.

2. Make sure that you use highly relevant academic sources for citation

Examples of useful academic sources:

Mikesell, John L., 2003, Fiscal Administration, Analysis and Applications for the Public Sector, Wadsworth Publishers, Belmont, CA, Eighth Edition.

Rubin, Irene S., 2000, The Politics of Public Budgeting, Getting and Spending, Borrowing and Balancing, Chatham House Publishers, New York, NY, Sixth Edition.

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