Subsidy Programs and Financing

Subsidies can take the form of cash payments or tax breaks, or they can be low-interest loans that are secured. Subsidies are intended to help achieve an economic goal or a political or social goal. Subsidies may have negative consequences and may impede other efficient public expenditures.

Substitutes may be considered reverse tax because they pay money to people or companies to take part in a specific activity, rather than charging them for it (for example tax incentives or student loans). Governments usually provide subsidies to products or activities based on their environmental and economic benefits.

Governments could, for example subsidize the production and utilization of renewable energy with tax breaks that encourage its use. They may also require utilities to purchase this energy. In addition, they could help to finance housing by giving people a grant or loan which covers a portion of the cost of renting or buying homes, allowing more people to afford to live in a neighborhood they might not otherwise be able to afford.

Subsidy schemes have a variety of objectives, but they usually, they are designed to help achieve the strategic goals of the nation or gain a competitive advantage in international markets. In certain instances they help to offset a natural or structural weakness in an economy. In the field of agriculture, for instance, producer subsidies help to increase prices above those of imported food items. These types of subsidies can distort market prices and result in a misallocation of resources.