Generally in general, subsidy programs as well as finance are intended to support specific areas of a nation’s economy that are unable to thrive through market forces alone. These could include struggling industries, or innovative innovations that support economic and social goals. Supporters of subsidies claim that they ease the burden on businesses or individuals who may not be able the costs of their own development while also promoting overall economic efficiency. The opponents, however, argue that government intervention in the economy could create unintended negative consequences. They assert that it could raise prices for consumers, encourage inefficiency and sway markets by favoring certain companies and industries over other industries.
Subsidy programs typically take on the form of direct cash payments, tax incentives or other financial aid programs. However, other types of subsidy programs include loan guarantees, low-interest loans, as well as capital subsidies. When assessing the effectiveness of these programs, it’s important to look at their impact on interest rates and the underlying variables.
A grantee could help, for instance, to reduce the interest rate of the mortgage to a prospective homeowner, which will reduce the monthly mortgage payments by one or more percentage points. This can be an important benefit that borrowers cannot eligible to receive from private financial institutions.
Other important aspects to consider when evaluating these types of programs are the criteria used to determine eligibility and the guidelines set around the use of the funds from credit subsidies. They could include requirements for income including maximum purchase prices, rents, as well as the minimum time periods that housing projects have to meet to qualify for the subsidy.