Subsidy schemes and financing generally, are designed to assist certain areas of the economy that would not otherwise be able to flourish due to market forces alone. This could be struggling industries or new developments that promote specific goals in economics and social development. Subsidies are believed to be beneficial for individuals and businesses who may not have the resources to invest in their own growth. They also boost economic efficiency. But opponents argue that government intervention in an economy could have unintended negative effects. They claim that it can raise prices for consumers, encourage inefficiency, and distort markets by favoring certain firms and industries over others.
Subsidy programs usually take the form of direct cash payments, tax incentives or other financial aid programs. Other forms of subsidy are loan guarantees, low interest loans, and capital subsidy. When assessing the effectiveness of these types of programs, it’s crucial to take into account the impact on interest rates as well as other factors that influence them.
For example the grantee could help to reduce the interest rate on mortgages for a new home buyer, which could reduce the monthly mortgage payment by a certain percentage points. This is an important benefit that borrowers cannot able to receive from private financial institutions.
Other important aspects to take into consideration in evaluating these programs are the criteria for eligibility as well as the guidelines that are established around the use of the credit subsidy funds. These may include income requirements as well as maximum purchase prices and rents, and the minimum time periods that housing projects have to be able to satisfy in order to receive the subsidy.
