I understand that subsidies are from the government to fund things that they want to promote, but where exactly do they get the money from? Is it from tax income?
In: Economics
Essentially, yes. Public finance is potentially very complicated, especially by the fact that governments manage large debt loads and also control the currency they’re spending. However, none of these complications can get them around the fact that a dollar spent on something (like a subsidy) carries a cost, and all those costs eventually come back to the public – either through taxation or inflation.
That said, subsidies CAN be a net positive in terms of tax revenue. By supporting some new economic activity now, the subsidy can lead to a large, taxable industry in the future. Refusing to subsidize anything ever could be like eating the seed corn. Everyone proposing a subsidy will make this argument, though only some of them will be correct.
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