Governments provide subsidies to stimulate specific economic activities or support broader national goals. Subsidies typically take the form of cash payments, grants, or tax breaks. They can also be guaranteed or low-interest loans. Subsidies can assist communities with low incomes to obtain healthcare, education or housing. They also can provide benefits for businesses, such as lower taxes and purchases by the government of their products.

Many people who criticize subsidy programs point to the distorted incentives that result from their. They claim that subsidies foster the conditions for a mutually beneficial relationship between politicians and businesses and encourage them to give to campaigns subsidy programs and financing and to demand a higher level of treatment from decision makers. They also argue that subsidies can deter innovation and inefficiency by making businesses that rely on them less likely to invest in new technology or adapt their business model to satisfy consumer needs.

Whatever the reason, the impact of these subsidies is difficult to estimate and could result in significant costs that are not projected by the government. They could also derail more efficient and equitable public spending.

If governments offer subsidies to the production of energy, they are able to lower the cost of solar panels for homeowners, and also assist companies that sell solar panels by providing tax credits or lowering their costs. They can also encourage the purchase of goods or services such as by providing subsidies to families that pay the cost of insurance. A government can also encourage people to apply for federal loans by offering low interest rates, deferment of payments or flexible payment plans.