Generally the subsidy programs and financing are intended to aid particular sectors of a nation’s economy that would otherwise be in a position to be unable to thrive on market forces alone. These might include struggling industries or new developments that advance specific social and economic goals. Subsidies are a popular choice because they reduce the burden on individuals or businesses that might not be able the costs of their own development as well as promoting overall efficiency of the economy. But opponents argue that government intervention in the economy may have unintended negative consequences. They assert that it could increase the cost of living for consumers, promote inefficiency and create a market distortion by favoring certain firms and industries over others.
Subsidy programs typically take the form of direct cash payments or tax incentives, as well as other financial aid programs. Other types of subsidy include loan guarantees, low interest loans, and capital subsidy. When assessing the effectiveness of these programs, it is important to take into account their impact on interest rates and the other variables that underlie them.
A grantee might, for example, subsidise the interest rate of the mortgage to a prospective homebuyer, which would reduce the monthly mortgage payment by one or more percentage points. This could be a huge benefit that borrowers are not able to receive from private financial institutions on their own.
Other important considerations when evaluating these programs are the criteria for eligibility and the guidelines set for the application of credit subsidy funds. These may include minimum income requirements, maximum rents and purchase prices, and the minimum period of time for housing projects that are eligible for subsidy.
