It's common for communities, states, and the country to subsidize private sector businesses. This page discusses whether this is appropriate or not.
For Subsidies:
- Some people have formed a small town and would like to use sales tax revenue to encourage the creation of a local gas station since it's currently several miles to the next one. The subsidy allows the business to turn a profit in a more reasonable length of time and attracts the gas station when the market won't support it otherwise.
- Another common scenario is when there's a blighted area of town. Such blighted areas can be eyesores and make living in this town less pleasant. It seems reasonable to allow a subsidy to encourage cleanup of the blighted area, which brings in tax revenue and improves the beauty and economic viability of the town.
Against Subsidies:
- It's possible for a subsidy to create an unfair advantage for one business relative to their competition. This seems unjust.
- Allowing government to subsidize the private sector encourages corruption. A business leader with questionable integrity may provide a large campaign contribution to a government leader and then ask for a favor in the form of a subsidy or exceptions to regulations. Avoiding or banning subsidies helps reduce the temptation for corruption.
Conclusions:
- The gas station scenarios make good sense. It seems wrong to say a town cannot subsidize to attract a business. However, if the business has a competitor, it would create unjust competition. This seems like one rule of thumb to determine whether a subsidy is acceptable or not. Perhaps giving the same subsidy to all competitors or all businesses would help level the playing field.
- To outlaw all subsidies is to limit the freedom of residents and business owners to protect their investment.
- Subsidies create temptation and must be carefully managed if they exist at all. Generally it seems better to avoid them.