Subsidy programs and financing generally, are designed to help certain subsidy programs and the legislative process segments of an economy that would not be able to thrive by market forces alone. This could be struggling industries or new developments aimed at advancing specific goals in economics and social development. Supporters of subsidies claim that they ease the burden on business or individuals who might not be able to afford the costs of their own growth, as well as promoting overall efficiency of the economy. Contrary to this, they argue that government intervention in an economy can have unintended effects. They argue that it could increase costs for consumers, create inefficiency, and can distort markets by favoring certain businesses and industries.
Subsidy programs typically take on the form of direct cash payments and tax incentives, or other forms of financial assistance. Other forms of subsidy are loan guarantees, low-interest loans, and capital subsidy. When it comes to assessing the effectiveness of these kinds of programs, it is critical to consider the impact on interest rates as well as other factors that influence them.
A grantee could in this way, for instance, reduce the interest rate of the mortgage to a prospective homeowner, which could reduce the monthly mortgage payments by one or more percentage points. This can be a substantial benefit that borrowers can’t get from private financial institutions on their own.
Other important aspects to take into consideration when evaluating these programs are the criteria used to determine eligibility as well as the guidelines that are established for the application of credit subsidy funds. These can include income requirements in addition to maximum purchase prices and rents, as well as the minimum time periods that housing projects have to be able to meet in order to qualify for the subsidy.