Subsidy Programs and Financing

Subsidies are provided by governments to encourage certain economic activity or to aid in the achievement of larger national objectives. Subsidies are usually implemented in the form of cash payments, grants or tax breaks. They can also be secured or a low-interest loan. Subsidies may help a community get access to education, healthcare or housing, or provide benefits to companies like lower taxes and government purchases of their products.

Many critics of subsidy programs point to the distorted incentives that result from these programs. They claim that subsidies cause businesses to give money to political campaigns and to insist on preferential treatment by the policymakers. They also note that subsidies can discourage innovation and inefficiency since they make companies that rely upon them less likely than others to invest in new technologies or change their business model to meet consumer demands.

Whatever the purpose regardless of the intended purpose, the impact of these subsidies may be difficult to determine and include significant costs that are not evident in projections of the government. They could also crowd out more efficient public spending.

When governments subsidize the production of energy, they are able to reduce the cost of solar panels for homeowners and help companies who sell them by offering tax credits or lowering costs. They may also encourage the consumption of a good or service, for instance by providing families with subsidies to will pay for a portion of health insurance premiums. The government can also encourage people to apply for federal loans by offering lower interest rates, deferred payments or flexible payment times.