Subsidies are given by governments to encourage specific economic activity or to help achieve larger national goals. Subsidies are typically offered in the form of cash payments, grants or tax breaks. They may also be a guaranteed or low-interest loans. Subsidies can help a community get access to education, healthcare or housing, or they might provide benefits to companies like lower taxes or government purchases of their products.
Many critics of subsidies programs point out the distortions in incentives they generate. They claim that subsidies cause firms to make donations to political campaigns and to seek preferential treatment from policymakers. They also argue that subsidies can hinder efficiency and innovation because they make businesses that depend on them less likely to invest in new technologies, or to change their business model in order to meet the demands of consumers.
Whatever the reason the impact of these subsidies may be hard to calculate and contain significant costs that are not reflected in government projections. They may also impede more efficient public spending.
For example that when governments subsidize energy production, they are able to help solar panels be affordable for homeowners and help companies who sell them by lowering the price of their products or providing tax credits. They could also encourage the use of goods or services, such as by providing subsidies to families that anchor pay part of their insurance premiums. In the same way, a government could incentivize people to take out federal student loans by offering that they will be able to repay them at low rates and offering perks such as deferment or flexible repayment schedules.