Governments provide subsidies to stimulate specific economic activities or support the larger goals of the nation. They are usually offered as cash payments as grants, tax breaks or even low-interest or guaranteed loans. Subsidies can assist communities with low incomes to access education, healthcare or housing. They can also provide benefits to businesses, like lower taxes and government purchases of their products.

Many critics of subsidies programs highlight the distorted incentives they create. They claim that subsidies cause businesses to donate to political campaigns and to seek preferential treatment from the policymakers. They also argue that subsidies often discourage innovation and inefficiency by making firms that rely on them less likely to invest in the latest technology or modify their business model to satisfy consumer needs.

These subsidies can have an impact on the budget even if they’re intended for a specific goal. They could also be difficult to calculate. They may also impede more efficient public spending.

For example when governments provide subsidies to energy production, they can make solar panels cost-effective for homeowners and help companies who sell them by lowering their sales prices or providing tax credits. They could also encourage the use of products or services, like by providing subsidy to families who cover some of their insurance costs. A similar way, the government can incentivize people to take out federal student loans, by guaranteeing that they will be able to repay them at low rates and offering perks like deferment or flexible repayment schedules.