The effects of investment subsidies on employment

Investment subsidies are given, among other things, in order to stimulate employment growth. This was the result expected by the Dutch government who introduced selective investment subsidies in 1977. According to the macroeconomic model of the Central Planning Bureau, positive employment effects seem indeed likely. The article critically considers the model assumptions on which the CPB conclusion is based and provides an alternative analysis using a large sectoral model. The outcome is that investment subsidies have a negative impact on employment when the role of capital costs is taken into account.