Subsidy and financing programs, in general, are designed to help certain areas of the economy that would not be able to flourish due to market forces alone. This could include struggling industries or breakthrough innovations that promote social and economic goals. Subsidies are said to be beneficial to individuals and businesses that may not have the resources to invest in their own development. They also promote economic efficiency. But opponents argue that the government’s intervention in the economy could have unintended negative effects. They assert that it could increase prices for consumers, increase inefficiency and create a market distortion by favoring certain companies or industries over other industries.
Subsidy programs usually take the form of direct cash payments, tax incentives or other forms of financial aid. Other types of subsidy include loans guarantees, low interest loans, and capital subsidies. When assessing the effectiveness of these programs, it’s crucial to look at their impact on interest rates as well as the underlying variables.
A grantee might help, for instance, to reduce the interest rate of a mortgage to a first-time homebuyer, which would reduce the monthly mortgage payment one or more percentages. This is an important benefit other that borrowers are not eligible to receive from private financial institutions.
Other crucial aspects to consider in evaluating these programs is the criteria for eligibility and the rules that are set for the use of the funds from credit subsidies. These can include minimum income requirements, maximum rents, purchase prices, as well as the minimum period of time for housing projects to qualify for subsidies.