Why are German heat pumps more expensive?

Rather, my thought is that such a subsidy encourages sellers to raise the price of the unit while including something else along with the unit. Suppose they raise the price by that €5,000 and include somewhere €3,000 of something else in the deal.

Installer pockets €2,000, customer pockets €500, government pays.

This can be emergent behavior, not necessarily designed.

We see this with Medicaid (healthcare for poor people) here in the US. Each state runs it's own program, but the federal government pays a large *percentage* of the cost. Enter drug companies offering the state big rebates to cover their brand name drug, states reacting by putting the brand name on the approved list and excluding the generic version. The total bill is a lot higher but the state gets back enough that it saves them money. This certainly wasn't intended in the design, but there's enough money in it that it hasn't been fixed.