Governments provide subsidies to stimulate certain economic activities, or to help achieve larger national goals. Subsidies are typically offered in the form of cash payments, grants, or tax breaks. They can also be secured or a low-interest loans. Subsidies may help a community get access to education, healthcare, or housing, or they might provide their explanation benefits to companies such as lower taxes or the purchase of government-owned products.

Many critics of subsidy programs point at the unbalanced incentives that result from them. They claim that subsidies encourage companies to contribute to political campaigns and seek preferential treatment from policymakers. They also argue that subsidies can hinder innovation and inefficiency since they make businesses that depend upon them less likely to invest in new technologies, or to change their business model to meet consumer demand.

No matter what the goal, the impact of these subsidies is difficult to estimate and could result in significant costs that aren’t projected by the government. They could also impede more equitable and efficient public spending.

When governments subsidize the production of energy, they are able to lower the price of solar panels for homeowners, and help companies who sell them, by offering tax credits or lowering prices. They can also encourage the purchase of goods or services, like by providing subsidies to families that pay some of their insurance premiums. A government could also encourage people to take out federal loans by offering low interest rates, deferment of payments or flexible payment schedules.