Discuss whether payment of government subsidies to farmers is a beneficial policy [12]

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Discuss whether payment of government subsidies to farmers is a beneficial policy [12]

The term subsidy refers to a monetary benefit being granted by the government to certain suppliers of a product. These benefits usually take the form of non-refundable grants, but can also be tax reductions, tax deductions or tax refunds. Subsidies are usually implemented as a means of relieving some form of burden from the producers. This can be done either to lower the price of a product in order to promote consumption, particularly in the case of merit goods, or to help increase profits for the producers in order to promote reinvestments of retained profit and economic growth. As such, subsidies can help struggling domestic producers compete with foreign producers, they can help incentivise new businesses to set up in previously underdeveloped industries by lowering barriers to entry and they can help better assure an adequate supply of essential goods and services such as healthcare which might be less profitable than other industries without the help of government subsidies.

One potential benefit of the implementation of subsidies to farmers can be in helping domestic producers compete with lower priced imported agricultural goods. As a result of free trade, many economies may find their domestic farmers outclassed by farmers producing in other countries, either due to lower minimum wages, better infrastructure, economies of scale or substantial subsidies in that specific country. This in turn is likely to lead to an increased demand for imported goods which, on the one hand can cause a trade deficit, and on the other, can cause a fall in demand for the domestically produced counterpart. This can disincentivise domestic producing due to low prospects of profit for entrepreneurs and can lead of divestments. In turn this is likely to cause widespread structural unemployment among farmers and slow down economic growth. Thus, subsidies can be implemented in order to help lower the supply curve for domestically produced agricultural goods and in turn allow them to better compete with imported goods. This can then go on to incentivise investments in the industry which is likely to lead to more and higher paying jobs becoming available as demand for agricultural workers, but also likely to lead to more reinvestments of profits back into the economy which further stimulates economic growth. Moreover, by allowing domestic producers to sell products at a similar price to foreign producers, exports are very likely to rise, thus helping improve the balance of trade, which can then help strengthen the currency, in turn incentivising foreign investments into the economy which is likely to help lower unemployment and increase economic growth. Furthermore, a stable currency would help increase the availability of credit which makes it easier for entrepreneurs to set up start-ups which also helps increase the economic growth rate. Another potential benefit of subsidies can be the fact that by lowering costs of production for agricultural goods, the government can assure lower prices for an essential product such as food. This then goes on to allow for better living conditions as people have to spend a lower proportion of their income on food and as such can spend more on satisfying their other needs and wants. Thus, through the use of subsidies the government can help increase the competitiveness of domestic farmers, strengthening the balance of trade, lowering unemployment and incentivising investments, while also helping lower the prices of food and similar essential goods which then leads to an improvement in the living conditions.
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However, there are certain drawback associated with the use of subsidies. On the one hand, high subsidies need to be paid in one form or another, thus subsidies will have to cause either an increase budgetary deficit or will force increase in taxes (well, Voodoo economics disagrees). This in turn raises the tax burden which leads to lower retained profits and disposable incomes thus limited the ability of people to spend and companies’ ability to invest which stifles economic growth and lowers the living conditions by limiting people’s ability to satisfy their needs and wants. Beyond this, spending ...

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