Price and Tax Subsidies : Effectiveness and Challenges

Abstract

Many governments use price and tax subsidization to meet social protection objectives. They endeavor to reduce the cost of living for their population-or for a subset of the population-by subsidizing the price of goods or services in lieu of, or in addition to, direct income transfers. While these subsidies may distort production incentives, subsidize the non-poor more than the poor, and limit consumer choice, there are reasons why a government may choose to use some forms of pricing policy rather than make income transfers to help the poor.