Subsidy programs and financing generally are designed to aid certain segments of the economy that would not otherwise be able to thrive by market forces alone. This could include struggling industries or new developments that help achieve economic and social goals. The advocates of subsidies argue that they reduce the burden on individuals or businesses that might not be able to afford the costs of their own growth, while also encouraging overall economic efficiency. Opponents argue, however, that government intervention in an economy could have unintended negative consequences. They argue that it could increase prices for consumers, promote inefficiency, and can distort markets by favoring certain businesses and industries.
In general, subsidy programs are in the form of direct cash payments or tax incentives. Other forms of subsidy include loan guarantees, low-interest loans, and capital subsidy. When assessing the effectiveness of these types of programs, it is crucial to consider the impact on interest rates and other underlying variables.
A grantee could as an example, help to lower the interest rate of a mortgage for a new homeowner, which could reduce the monthly mortgage payment by one or more percentages. This could be a major benefit that borrowers are not eligible to receive from private financial institutions.
When evaluating this type of program, it is important to consider the eligibility criteria and the rules that regulate the use of credit subsidy funds. They could include requirements for income in addition to maximum purchase prices and rents, as well as the minimum time periods that housing projects must be able meet to be eligible for the subsidy.