When the government uses subsidies, tax credits, and other forms of government favoritism to allocate investment funds, will this action tend to promote productive projects and restrain counterproductive ones? Why or why not?

Depending on how these are used it can sometimes promote productive projects but at times, might encourage counter productive ones.

Explanation:

The answer is not simple since it depends on what exactly the government wants to do. For example, if the US government wants to create a new 'Silicon Valley' in the State of Florida, it can provide tax credits to lure in large corporation and even help startups.

In another example, the government has leased out a railway track between New York and Connecticut to a private corporation. However, in order to make a profit, the private company will need to increase it's ticket prices. The government might step in and subsidize the ticket prices to help local citizens.

This might be good for politics, but is a strain on government funds and can only encourage further counter productive activities.

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