from a government
given to companies in a particular industry
) based on their output
Most governments instate a domestic production subsidy for one of the following reasons:
- To help a particular industry to remain active. Since some farms in Europe and America are not profitable without a subsidy the DPS serves to keep the agriculture industry in place. The reasoning behind this is that if that country were to undergo a national disaster, or war the country needs to be able to produce certain goods internally. Also “the farmer’s way of life” is sometimes cited as something that needs to be preserved as it is a part of the cultural heritage of the nation.
- Subsidies are also used to stimulate output of a particular good. This might be done because the product is assumed to be critical for national security. So, for example during a war subsidies might be instated to make growing one type of grain more profitable than another (because, perhaps, one can be shipped long distances more easily.)