Governments provide subsidy to encourage certain economic activities, or to help achieve larger national goals. Subsidies typically take the form of cash payments, grants, or tax breaks. They can also be secured or a low-interest loans. Subsidies can help a community access education, healthcare, or housing, or they might give companies benefits such as lower taxes and the possibility of a government purchase of their products.
Many opponents of subsidies point at the unbalanced incentives that result from them. They argue that subsidies induce businesses to donate to political campaigns and to demand preferential treatment by the policymakers. They also say that subsidies can deter innovation and inefficiency by forcing companies that rely on them less likely to invest in new technologies or change their business model to satisfy consumer requirements.
These subsidies could have an impact on the budget, even if they are specifically designed for a particular purpose. They could also be difficult to calculate. They could also crowd out more efficient public spending.
For example when governments provide subsidies to energy production, they can make solar panels cost-effective for homeowners and aid companies who sell them by lowering their sales prices or offering tax credits. They can also promote the consumption of a good or service, such as giving families subsidies that 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 schedules.
