Those subsidies will be returned. Or not?

Subsidy. For movies, for motorbike races, for culture, for anything. It is said that they will "return" to us, because they are said to support something - employment, tourism and so on. But will they really "come back" to us? What is and what is not visible in subsidies?

Subsidy
subsidy

What can be seen


The scenario is usually simple: let's put a grant on (for example) Masaryk Circuit, for motorcycle races. Better facilities, higher quality of the circuit and lower "subsidized entrance fee" will attract a lot of tourists, they will spend a lot of money with us, thanks to which our traders will earn, employ more people, they will spend more, pay more in taxes and earns!

But is it really so?

What is not visible

Let's look at the same scenario from another angle:

Let's give a subsidy for (for example) Masaryk's circuit, for motorcycle races. Better facilities, higher quality of the circuit and lower "subsidized entrance fees" attract many tourists. For example, from Austria. But on the way here, they will have to buy Czech crowns (or spend the Euros and the traders will then exchange them for crowns).

Higher demand for our currency will increase its price on the markets - the koruna will start to appreciate, so for 1 Euro you will get less crowns at once, for less crowns you will get more Euro. However, this will make Czech exports more expensive. The more tourists those motorcycle races attract, the more the Czech koruna will appreciate, the more expensive the Czech goods will be on foreign markets.

Exactly the same amount of money that will be spent "extra" in our country will be spent on more expensive crowns in exports. the subsidy will be paid by exporters, such as Škoda.

But that's not all. Any great interest of foreign tourists in the races on the Masaryk Circuit and their large spending at this location will result in several other effects:

  • 1. Increased demand for local services will lead to an increase in their price. So everything in the place becomes more expensive - restaurants, hotels, souvenirs and so on. As their price rises, so will the local consumption of tourists.
  • 2. the exchange rate is operating here again. The more tourists they want to spend with us, the more money, the more expensive our currency will be. In other words - tourists for their own Eura, Dollars and others will receive less and less crowns. This will again lead to a decrease in their consumption in the Czech Republic.

We must realize that effect number 2 will de facto apply throughout the Czech Republic. subsidies for plants in Brno will result in lower consumption by tourists in Prague, Karlovy Vary and other popular tourist destinations. This, of course, is accompanied by lower employment and lower tax revenue.

As such a final candy, of course, we must realize that the artificial tourist "boom" in a certain area after the supposed effect of the subsidy disappears completely will mean that there will be too many useless restaurants, too many useless souvenir shops… and so on.

A lot of investments from the "boom" period, which seemed profitable, suddenly stop paying off. Prices and profits in the affected sectors will go down, many will go bankrupt and "close the shop" - there will be redundancies, an increase in unemployment, a de facto local "crisis". The area experienced a short-term party during the subsidy period, now it is necessary to sober up…

PS: One more note: if it were not subsidized, taxes would not have to be levied on subsidies. Then we could spend more on ourselves and we wouldn't need "subsidies"…

0 comments

  1. It doesn't matter how much it affects the currency. The important thing is that exactly as many tourists will bring to us, exactly as many Czech exporters will lose. So, as a result, there is nothing more, on the contrary, we have drowned money in bad investments (unnecessary shops, etc.). This is more accounting than economic law - the balance of payments.

  2. Do you really think that 250000 people who attend one two-day event a year and spend money on it will significantly affect the exchange rate of the Czech currency? Think about it!

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