Summary and ConclusionThough there is no clear-cut definition of a subsidy, in theory, for instance under welfare economics, they are suggested to achieve a Pareto-efficient allocation of resources in line with the Second -Best Theory, and in practice they are widely used by the governments to correct market failures and encourage new investments all over the world.In this study, justifications for industrial subsidies are first mentioned, and then effects of them as budgetary and other effects widely seen especially in developed countries are examined. Finally, capital subsidies in the form of various capital incentives i.e. investment allowances, tax deductions and rebates, accelerated depreciation are discussed as macro and micro economic effects on the economy and firms, respectively.It is suggested, however, that further elaborations are needed, perhaps through cost / benefit analysis, since the effectiveness of industrial subsidies is obscure, at best mixed.