| Definition |
Direct financial aid or support given by the government to reduce the cost of goods or services. |
Tax relief or reduction offered to individuals or businesses to encourage certain behaviors or investments. |
| Purpose |
To lower production costs, promote industries, support consumers, or achieve social objectives. |
To incentivize investments, economic activities, or social policies via tax savings. |
| Form of Benefit |
Cash payments, grants, price support, or direct subsidies. |
Tax credits, deductions, exemptions, or reduced tax rates. |
| Recipient |
Producers, consumers, or specific sectors. |
Primarily businesses or taxpayers. |
| Effect on Government Revenue |
Direct government expenditure, reducing budget surplus. |
Reduces tax revenue through lower collections. |
| Economic Impact |
Can directly reduce costs and prices, increasing demand or supply. |
Encourages desired behaviors by lowering tax burdens. |
| Implementation Complexity |
Requires budget allocation and administration. |
Implemented through tax codes and compliance mechanisms. |
| Transparency |
Generally more transparent as direct payments. |
Can be complex to track due to tax filing nuances. |
| Examples |
Farm subsidies, energy subsidies, housing subsidies. |
Investment tax credits, R&D tax credits, renewable energy tax breaks. |
| Timing of Benefit |
Immediate or periodic financial support. |
Realized during tax filing or over multiple years. |
| Targeted Sectors |
Agriculture, energy, housing, education, healthcare. |
Technology, renewable energy, small businesses, low-income individuals. |
| Risk of Misuse |
Possibility of dependency or inefficiency if mismanaged. |
Can lead to tax avoidance or loophole exploitation. |
| Long-term Impact |
May distort markets if subsidies are prolonged. |
Encourages long-term investments or behaviors aligned with policy goals. |
| Effect on Prices |
Can lower consumer prices by subsidizing production costs. |
Indirect effect; lowers costs by reducing tax expenses. |
| Examples in India |
Subsidized fertilizers, LPG subsidies. |
Tax breaks on startups, deductions for investments in infrastructure. |
Subsidy vs Tax Incentive