Governments provide subsidies to encourage certain economic activities or to support more general national goals. They are typically offered in the form of cash payments as grants, tax breaks, or guaranteed or low-interest loans. Subsidies can help a community access education, healthcare, or housing, or they might offer benefits to businesses such as lower taxes and government purchases of their products.

Many critics of subsidy programs draw attention at the distorted incentives that result from the programs. They claim that subsidies create an entanglement between politicians and businesses which encourages them to contribute to campaigns and to demand a higher level of treatment from the policymakers. They also point out that subsidies often discourage innovation and inefficiency by making businesses that rely on them less likely to invest in new technology or adapt their business model to meet consumer demands.

No matter what the goal regardless of the intended purpose, the impact of these subsidies may be difficult to quantify and may result in significant costs that are not reflected in government projections. They could also derail more efficient and equitable public spending.

For example when governments offer subsidies to energy production, they can make solar panels cost-effective for homeowners and aid companies that sell them by lowering their prices or offering tax credits. They can also help promote the consumption of a product or service, like providing families with subsidies that pay for some of their health insurance premiums. The government can also help people to apply for federal loans by offering lower interest rates, deferment of payments or flexible payment plans.