Samsun, Sakarya, Ankara, Adana and Kayseri. As a further robustness check, we drop Ankara, Adana and Kayseri (AAK) because those are the main industrial cities of Cental Anatolia and they are considerably wealthier cities (Table A.3.)

# _Contiguous counties_

Even after narrowing our control group to firms in non-eligible contiguous provinces, one may argue that there may still be systematic differences with firms in provinces in the treatment group, in ways that may differentially affect employment growth in those firms. To further alleviate concerns, we restrict the control group to firms in counties contiguous to eligible provinces – where a county is a smaller geographical unit than the province.<sup>16</sup> Table A.4 reports the list of contiguous counties used as the control group for eligible provinces. In this specification, we exclude region 6 completely and only compare treatment firms in regions 4 and 5 with control firms that are in contiguous counties. So geographically, the distance between our control and treatment firms is almost never more than about 100 km and in the majority of cases, the distance is less than 50 km. Furthermore, we exclude the city centers from both treatment and control provinces and we only compare firms in contiguous county municipalities in each group. It is also important to highlight that we do not pool the counties together, but instead run estimations for one treatment county at a time. Due to the very large sample size, we still have hundreds of thousands observations for estimating the impact on firms in each treatment county.

The results are displayed in Table 5 and show that our findings are robust to narrowing down the geographical coverage of our control group of firms. The estimated effect of the subsidy is positive and significant at the 1% percent level in all three regions. In addition, the magnitude of the difference-in-difference coefficient is very similar to that of our baseline specification in all three regions. This provides further comfort that our baseline estimates are not driven by potential confounding effects of systematic differences between firms in eligible and non-eligible provinces that may affect employment trends in the two groups even in the absence of the subsidy. Table A.6 also shows estimated employment effects separately by sector of activity. Estimates are positive in all sectors and statistically significant in the vast majority of them, but the magnitude of the effects varies across sectors. Among the largest sectors of activity, estimated effects are particularly large in construction and manufacturing. In contrast, estimated effects are smaller in high-skilled services such as finance and real estate, where the rates of formal employment have been higher to start with.

One question of interest beyond these overall positive employment effects is how they vary over time after the policy change, and in particular how persistent they are. In Tables 6 and 7, we further investigate how persistent these positive effects on formal job creation are over time by interacting the difference in difference indicator variable with year dummies for each year following the policy change. The magnitude of the formal job creation treatment effect

> 16 Turkey has a total of 973 districts (Turkish Statistics Institute, 2021).

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