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Subsidies can take the form of tax breaks or cash or low-interest loans that are secured. They are usually intended to promote a specific business or social or political purpose. Subsidies can be detrimental and impede other efficient public expenditures.
Substitutes are often viewed as a reverse tax since they pay money to people or businesses to engage in a specific task instead of charging them for anchor it (for instance, tax incentives or free student loans). Governments often subsidize products or activities in order to provide environmental and economic benefits.
For instance, governments can provide subsidies for the production of renewable energy by providing tax breaks to encourage its use, and making it mandatory for utilities to purchase it. Also, they could help with housing costs by providing grants or loans that will cover a part of the cost of renting or purchasing a home. This lets more people reside in a place they would not be able afford otherwise.
Subsidy schemes have a variety of objectives, but they usually, they are designed to help achieve the national strategic objective or gain a competitive advantage in international markets. In other cases they are designed to address weaknesses in the structure or natural within the local economy. For instance, in the agricultural sector producer subsidies help increase prices above those of imported food items. These kinds of subsidies can affect market prices and can result in misallocation of scarce resources.
