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    November 15, 2021 at 10:20 am

    Discuss your opinion on government intervention and how understanding consumer behaviors shape your business strategies?

    Governments have the capacity to make broad changes to monetary and fiscal policy, including raising or lowering interest rates, which has a huge impact on business.
    They can boost the currency, which temporarily lifts corporate profits and share prices, but ultimately lowers values and spikes interest rates.

    Governments can intervene when companies or entire segments of the economy are failing, or threatening to undermine the whole economic system, by providing bailouts.

    Governments can create subsidies, taxing the public and giving the money to an industry, or tariffs, adding taxes to foreign products to lift prices and make domestic products more appealing.

    Subsidies and Tariffs
    Subsidies and tariffs are essentially the same things from the perspective of the taxpayer. In the case of a subsidy, the government taxes the general public and gives the money to a chosen industry to make it more profitable. In the case of a tariff, the government applies taxes to foreign products to make them more expensive, allowing the domestic suppliers to charge more for their products. Both of these actions have a direct impact on the market.

    Government support of an industry is a powerful incentive for banks and other financial institutions to give those industries favorable terms. This preferential treatment from the government and financing means more capital and resources will be spent in that industry, even if the only comparative advantage it has is government support. This resource drain affects other, more globally competitive industries that now have to work harder to gain access to capital. This effect can be more pronounced when the government acts as the main client for certain industries, leading to well-known examples of over-charging contractors and chronically delayed projects.

    Regulations and Corporate Tax:
    The business world rarely complains about bailouts to certain industries, perhaps because of the knowledge that their industry may one day need help as well. But Wall Street does object when it comes to regulations and taxes. That’s because while subsidies and tariffs can give an industry a comparative advantage, regulations and taxes can negatively impact profits.

    High taxes on corporate profits have a different effect in that they may discourage companies from coming into the country.

    Just as states with low taxes can lure away companies from their neighbors, countries that tax less will tend to attract any mobile corporations. Worse yet, the companies that can’t move end up paying the higher tax and are at a competitive disadvantage in business as well as for attracting investor capital.

    Governments play a substantial role in the financial world. Regulations, subsidies, and taxes can have an immediate, and long-lasting impact on companies and whole industries. For this reason, Fisher, Price, and some other famous investors considered legislative risk as a notable factor when evaluating stocks. A great investment can turn out to be not that great if it’s at risk of seeing its competitive advantage and profits dwindle as a result of certain government actions.