Subsidies IA help

[indimpi 7]

Economics students help!! currently working on my international economics ia about subsidies. as the government will be using tax revenues from tax payers to finance the subsidy, would this be a consequence taking place in the short run or long run??

[MountEETOKIA 8]

A combination of both. A subsidy has 2 textbook effects, and you can use these points in your evaluation:

1. High opportunity costs (long-term) associated with using government tax revenue: the revenue could be used to fund other worthy causes such as education, healthcare, infrastructure, development --> These issues could be argued as more worthy areas to spend tax revenue on. 

2. To raise government tax revenue used to fund the subsidy, the government might raise personal income tax on citizens (short-term) and corporate tax on businesses. This creates a disincentive effect on work and investment, which is detrimental to the economy both short and long-term. When personal income tax rises, amount of disposable income falls, leading to a fall in consumer spending, causing a fall in C. When corporate tax rises, businesses are less able to undertake investment, I falls. Since C and I are components of aggregate demand (AD), AD falls, and there is a contraction in the economy. 

If you would like some ideas or evaluation points, I have quite a few high-scoring student-written sample Economics IAs (including IAs which focus on subsidies). You can check them out here. 

Cheers! Let me know if I helped. 

[RobChaves890 0]

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Edited October 28, 2020 by RobChaves890