Subsidy Programs and Financing
Governments provide subsidies 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 may also be guaranteed or a low-interest loan. Subsidies may help disadvantaged communities get access to healthcare, education or housing. They also provide benefits for businesses, such as lower taxes and purchases by the government of their products.
Many opponents of subsidies point at the unbalanced incentives that result from the programs. They claim that subsidies foster a mutually beneficial relationship between politicians and businesses and encourage them to give to campaigns and to demand a higher level of treatment from the policymakers. They also point out that subsidies can hinder innovation and inefficiency, forcing companies that rely on them less likely to invest in new technology or adjust their business model to meet customer needs.
Regardless of the intended purpose, the impact of these subsidies may be hard to calculate and contain significant costs that aren’t evident in projections of the government. They may also crowd out more equitable and efficient public spending.
For instance, when governments subsidize energy production, they could make solar panels affordable for homeowners and aid companies who sell them by lowering their selling prices or providing tax credits. They could also encourage the use of products or services, for instance, by providing subsidies to families that cover part of their insurance premiums. Additionally, the government can induce people to take out federal student loans by ensuring that they will be able to repay them at low rates and offering perks such as deferment or flexible payment schedules.
