Subsidy and financing programs generally, are designed to aid certain areas of the economy that would not otherwise be able to flourish due to market forces alone. These could include struggling industries or innovative developments that support economic and social goals. Subsidies are said to be beneficial to people and businesses who may not have the funds to invest in their own growth. They also help to improve economic efficiency. Contrary to this, they argue that the intervention of government in an economy may have unintended negative consequences. They argue that it could increase costs for consumers, create inefficiency, and stifles markets by favoring certain firms and industries.
Most often, subsidy programs come in the form of cash payments or tax incentives. However, other forms of subsidies include loan guarantees, low-interest loans, and capital subsidies. When analysing the value of these types of programs, it is critical to take into account the impact on interest rates as well as other underlying variables.
A grantee could, for example, subsidise the interest rate of a mortgage for a new homeowner, which will reduce the monthly mortgage repayment by one or more percentages. This can be a substantial advantage that borrowers cannot get from private financial institutions on their own.
When evaluating this kind of program, it is crucial to take into consideration the eligibility criteria and the parameters that determine the use of credit subsidy funds. These may include income requirements including maximum purchase prices, rents, and the minimum time periods that housing projects must meet to qualify for the subsidy.