Subsidies are given by governments to stimulate certain economic activities or to aid in the achievement of larger national goals. Subsidies typically take the form of cash payments, grants or tax breaks. They can also be guaranteed or low-interest loan. Subsidies can assist communities with low incomes to access education, healthcare or housing. They can also provide benefits for businesses, such as lower taxes and government purchases of their products.

Many critics of subsidy programs highlight the distorted incentives that they create. They claim that subsidies encourage firms to make donations to political campaigns and seek preferential treatment from the policymakers. They also argue that subsidies can deter innovation and inefficiency, making companies that depend on them less likely to invest in new technology or adjust their business model to satisfy consumer demands.

These subsidies can have a significant impact on the budget, even if they are intended for a specific purpose. They can be difficult to determine. They may also be a source of more efficient public spending.

For example when governments offer subsidies to energy production, they are able to make solar panels affordable for homeowners and help companies that sell them by lowering their selling prices or providing tax credits. They can also promote the consumption of a product or service, like providing families with subsidies to will pay for a portion of health insurance premiums. The government can also help people to apply for federal loans by offering lower interest rates, deferment of payments, or flexible payment schedules.

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