Subsidies are offered by governments to encourage specific economic activity or to further support national goals. Subsidies usually come in the form of cash payments, grants, or tax breaks. They can also be guaranteed or low-interest loans. Subsidies could help communities in need gain access to healthcare, education, or housing. They also offer benefits to businesses, such as lower taxes and government purchases of their products.

Many critics of subsidy programs point to the deceitful incentives that result from their. They claim that subsidies create an unidirectional relationship between political parties and businesses which encourages them to contribute to campaigns and demand preferential treatment from the government. They also note that subsidies can hinder innovation and inefficiency by forcing companies that rely on them less likely to invest in the latest technology or modify their business model to satisfy consumer needs.

Whatever the reason, the effect of these subsidies may be difficult to estimate and could result in significant costs that are not included in government projections. They could also derail more efficient public spending.

For example that when governments subsidize energy production, they are able to make solar panels cost-effective for homeowners, and assist companies that sell them by lowering their sales prices or offering tax credits. They can also encourage the consumption of services or goods, for example, by offering subsidies to families that pay part of their insurance premiums. In the same way, a government could induce people to take out federal student loans, by guaranteeing them at low interest rates and offering perks like deferment or flexible repayment schedules.