The issue of subsidy has gained immediate attention because of substantial subsidy for electricity to the poorer sections and several other subsidies given recently by the Delhi government, which has attracted criticism on the ground that it is a populist measure to gain votes. I am not writing exactly on the issue of what the Delhi government has done. I am writing on the theoretical aspect of how to judge subsidies as populist or popular or welfare measures.
Any theoretical approach to the issue of subsidy has to begin with what goes in the name of Pigouvian subsidy. British economist
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