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Subsidies can take the form of tax breaks or cash payments, or they can be low-interest loans that are backed by. They are generally designed to boost a specific economic activity or to achieve a social or political goal. Subsidies may have negative consequences and impede other efficient public expenditures.

Substitutes are a kind of reverse tax, meaning that they allow business or individuals money to participate in an activity instead of charging them for doing the same (for instance tax incentives, tax breaks as well as student loans that are free). Governments usually provide subsidies to products or activities in order to provide economic and environmental advantages.

Governments can, for instance, subsidize the production and use of renewable energy by offering tax breaks that encourage its use. They may also require utilities to purchase this energy. Or they may subsidize housing by offering people an aid or loan which covers a portion of the cost of renting or buying an apartment, allowing more people to afford to live in a place they would otherwise not be able to afford.

The goal of subsidy programs will vary however, they are usually targeted at achieving a certain national strategic objective or winning an advantage on international markets. In certain instances they are used to compensate for a structural or natural weakness in an economy. For instance, subsidies for producers in the field of agriculture can help boost prices for farmers over the prices of imported food items. These kinds of subsidies could cause distortions in the market price and a misallocation or a shortage of resources.