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Subsidies are given by governments to boost certain economic activity or to aid in the achievement of larger national objectives. They are typically offered in the form of cash payments such as grants, tax breaks or even low-interest or guaranteed loans. Subsidies can help a disadvantaged community gain access to healthcare, education or housing, or give companies benefits such as lower taxes or a government purchase of their products.

Many critics of subsidies point out the distortions in incentives they create. They argue that subsidies induce firms to make donations to political campaigns and solicit preferential treatment from policymakers. They also argue that subsidies can hinder efficiency and innovation because they make firms that rely upon them less likely to invest in new technologies or modify their business model to meet the demands of consumers.

These subsidies could have an enormous impact on the budget even if they’re intended for a specific goal. They could also be difficult to quantify. They could also hinder more efficient and equitable public spending.

If governments provide subsidies to the production of energy, they can reduce the cost of solar panels for homeowners, and aid companies selling them by offering tax credits or by lowering their prices. They can also promote the consumption of a product or service, for instance by providing families with subsidies that help pay for a portion of their health insurance premiums. A similar way, the government can encourage people to take out federal student loans by offering them at low interest rates and providing perks such as deferment or flexible repayment schedules.