Subsidies can be described as a government benefit that could take the form of cash payments, tax breaks and guaranteed or low-interest loans. Subsidies are intended to help achieve some specific economic goal or a political or social objective. Subsidies could have negative effects and may impede other efficient public expenditures.
Substitutes may be considered a reverse tax, since they provide money to individuals or companies to engage in a specific task instead of charging them for it (for instance tax incentives or student loans). Governments typically provide subsidies for products or activities due to their economic and environmental benefits.
Governments may, for instance, subsidize the production and use of renewable energy via tax breaks that encourage its use. They can also require utilities to purchase this energy. They can also help to pay for the cost of housing by offering a loan or grant that helps to cover a portion of cost for renting or buying homes. This lets more people reside in an area that they could anchor not afford otherwise.
The goals of subsidy programmes may differ however, they are usually focused on achieving a particular national strategic goal or gaining a competitive advantage in international markets. In certain instances they help to offset a structural or natural weakness in an economy. For example, producer subsidies in the field of agriculture can help boost prices for farmers above the cost of imported food products. These kinds of subsidies can cause distortions in market prices as well as a misallocation or depletion of resources.
