Classification of Government Expenditures

4 - Subsidies

'Subsidies' refers to current unrequited payments that government units, including non-resident government units, make to enterprises on the basis of the levels of their production activities or the quantities or values of the goods or services that they produce, sell or import. They are receivable by resident producers or importers. In the case of resident producers, they may be designed to influence their levels of production, the prices at which their outputs are sold or the remuneration of the institutional units engaged in production. Subsidies have the same impact as negative taxes on production in so far as their impact on the operating surplus is in the opposite direction to that of taxes on production. Subsidies are not payable to final consumers; current transfers that governments make directly to households as consumers are treated as social benefits. Subsidies do not include grants that governments make to enterprises in order to finance their capital formation, or to compensate them for damage to their capital assets, such grants being treated as capital transfers. Included are transfers to public corporations and other enterprises that are intended to compensate for operating losses.