Subsidy Programs and Financing

Subsidies are a kind of government benefit that can take additional hints the form of cash payments, tax breaks and loans with low or guaranteed interest. Subsidies are aimed at achieving an economic goal or a political or a social goal. However, subsidies may be harmful and can reduce the effectiveness of public spending.

Substitutes are a kind of reverse taxation, in that they allow people or businesses money to participate in an activity instead of charging them to do the same (for example tax incentives and student loans for free). The government often provides subsidies for products or activities that provide environmental and economic benefits.

For instance, governments can help to finance the production of renewable energy by providing tax breaks to encourage its use, and requiring utilities to purchase it. Or, they can subsidize housing costs by giving people grants or loans that helps to cover a portion of cost of renting or purchasing an apartment. This lets more people live in an area they would not be able afford otherwise.

The purpose of subsidy programs are different but they are generally focused on achieving a particular national strategic objective or winning an advantage in international markets. In some instances they help to offset a structural or natural weakness in an economy. In agriculture, for example producer subsidies help boost prices above those of imported foods. These kinds of subsidies can lead to a distortion of market prices as well as a misallocation or depletion of resources.