Criscuolo and others (2012) evaluate the same program with a focus on employment effects. However, they use more precise data on grant per firm. They find that a 10 percent increase in an investment subsidy causes about a 7 percent increase in employment, with about half of this arising from growth in existing plants and half from higher net entry. The scheme boosted employment by about 100,000 a year at a cost of around $6,300 per job, which is relatively cheap. A possible downside was that the positive effects were confined to smaller firms, which tend to be less productive. The authors conclude that the program potentially lowers aggregate productivity.

Few other studies examine how investment incentives affect the behavior of multinational enterprises. Instead, they focus on the behavior of micro, small, and medium‐size firms and the impact of matching grants or the effectiveness and substitutability of tax and financial incentives (such as R&D subsidies and tax exemptions) for large versus small firms. One exception concerns behavioral incentives for jobs. In this context, a literature review by Rahman (2014) summarizes recent econometric evidence:

- Becker and others (2012) analyze how business tax rates affect the number of multinational enterprises, employment, and fixed assets in 11,000 German municipalities. They find that most municipalities do not attract any foreign multinational enterprises. The average municipality would have to lower its business tax rate by about 15 percent— or 2.2 percentage points— to lure a foreign multinational enterprise. This translates into an increase in employment in foreign‐ owned firms of about 157 jobs and about €6.28 million in fixed assets. The authors estimate that the associated gains in taxes collected from the foreign multinational enterprises would be lower than the losses the average municipality encountered from foregone business tax revenues collected from national enterprises. The study concludes that only municipalities with generally favorable environments for firm location should use their tax rates to attract foreign multinational enterprises.

- Duranton, Gobillon and Overman (2011) analyze local property taxation effects using British manufacturing data. Correcting for unobserved establishment heterogeneity, unobserved, time‐ varying, site‐specific effects and for the endogeneity of local taxation, they find that local taxation has a significant negative effect —with an elasticity of ‐1.024— on employment growth and no effect on business entry. The negative effect on employment occurs because of some combination of slowing firm growth and the selection effects of higher taxes.

- Hanson and Rohlin (2011) estimate the effects of the Empowerment Zone Program on employment across U.S. industries. The program’s main component is a wage tax credit set at 20 percent of the first $15,000 in wages paid, for a maximum credit of $3,000 per employee living and working in the designated program area. Applications are accepted from areas where at least 20 percent of the population lives in poverty, and 6.3 percent are unemployed. The authors find that location‐based tax incentives have heterogeneous effects across industries based on capital‐ labor substitutability in the production technology of different industries. In this regard, the short‐ term gains from the program seem to be offset by losses in other sectors.

- Freedman (2013) examines the effects of the Texas Empowerment Zone Program on local labor markets. Participating businesses within the Empowerment Zone or outside of it receive a combination of state and local benefits for up to five years, and can take several forms. Businesses

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