Generally the subsidy programs and financing are intended to aid specific sectors of an economy that are unsustainable if it was based on market forces alone. These could include struggling industries or new developments that help achieve economic and social goals. Subsidies are argued to be beneficial for people and companies who do not have the resources to invest in their own development. They also promote economic efficiency. The opponents, however, claim that government intervention in the economy can create unintended negative consequences. They claim that it can increase prices for consumers, increase inefficiency and sway markets by favoring certain businesses and industries over others.
Subsidy programs typically come in the form of cash payments or tax incentives. However, other types of subsidies include loan guarantees, low-interest loans, as well as capital subsidies. In evaluating the value these programs, it is important to take into account their impact on interest rates and the other variables that underlie them.
A grantee could as an example, help to lower the interest rate of the mortgage to a prospective homeowner, which could reduce the monthly mortgage payment one or more percentage points. This is a major benefit that borrowers can’t get from private financial institutions on their own.
When evaluating this type of program, it’s important to consider the eligibility criteria and the guidelines that govern the use of the credit subsidy funds. They could include minimum income requirements, maximum rents and purchase prices, and minimum time periods for housing projects to qualify for subsidy.