Explain if subsidies could reduce employment in the state

Reference no: EM13245001

Many states provide firms with an "investment tax credit" that effectively reduces the price of capital. In theory, these credits are designed to stimulate new investment and thus create jobs. Critics have argued that if there are strong factor substitution effects, these subsidies could reduce employment in the state. Explain their argument. How does this affect the labor market?

Reference no: EM13245001

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