What Is a Subsidy?

By Jeremy Bowman – Updated Jun 2, 2025 at 1:17 PM

Key Points

Subsidies are government payments aiding those unable to afford essentials or to encourage behaviors.
Subsidies can impact markets; they support sectors like agriculture and semiconductor manufacturing.
Pros include economic value and safety nets; cons include market distortion and reliance issues.

Subsidies get a lot of attention in public policy and economics. You might often hear about certain needs or products being subsidized, such as housing, education, healthcare, or even transportation. But what exactly is a subsidy? Keep reading to learn more about this key concept in markets, how they work, the pros and cons, and some examples of subsidies.

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Hands holding a magnifying glass over a slip of newspaper that says Affordable Housing. — Image source: Getty Images.

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Some opponents argue that the tax credit mostly goes to wealthier Americans who are already buying more expensive cars and don't need the savings. Others argue that they distort the auto market by disincentivizing the purchase of used EVs or sensible gas-powered vehicles.

Subsidies are usually up for debate since there is no perfect answer for their size and scope. That's part of the reason they differ from state to state and tend to change over time. Although it's hard to influence them directly as an individual, political leaders and groups can -- and often do -- change subsidies and make new ones.

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About the Author

Jeremy Bowman has been a contributing Motley Fool stock market analyst, covering technology, consumer goods, and macroeconomic trends since 2011. Before The Motley Fool, Jeremy was a newspaper reporter, restaurant manager, and English teacher abroad. He holds a bachelor’s degree in English from Colorado College and a master’s degree in business administration from American University. One of his Motley Fool headlines was briefly featured on Late Night with Stephen Colbert.

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