Subsidies are provided by government to encourage specific economic activity or to further support national goals. They typically come in the form of cash payments such as grants, tax breaks or even low-interest or guaranteed loans. Subsidies can help a disadvantaged community access education, healthcare, or housing, or they might offer benefits to businesses such as lower taxes and a government purchase of their products.
Many critics of the subsidies program expose the negative incentives that they create. They argue that subsidies create an entanglement between political parties and businesses and encourage them to give to campaigns and to demand a higher level of treatment from the government. They also point out that subsidies can deter efficiency and innovation because they make firms that rely upon them less likely than others to invest in new technologies or modify their business model to meet consumer demands.
Regardless of the intended purpose, the impact of these subsidies is difficult to determine and include significant costs that are not reflected in government projections. They could also impede more equitable and efficient public spending.
When governments subsidize the production of energy, they can reduce the cost of solar panels for homeowners, and aid companies selling these panels, by providing tax credits or lowering their prices. They may also encourage the consumption of a good or service, such as giving families subsidies that will pay for a portion of health insurance premiums. A similar way, the government can encourage people to get federal student loans by ensuring them at low interest rates, and also offering benefits like deferment and flexible payment schedules.