Abstract: The purpose of this paper is to shed light on the
controversial subject of tax incentives to promote regional
development. Although extensive research has been conducted, a
review of the literature gives an inconclusive answer to whether
economic incentives are effective. One reason is the fact that for
some researchers “effective" means the significant location of new
firms in targeted areas, while for others the creation of jobs
regardless if new firms are arriving in a significant fashion. We
present this dichotomy by analyzing a tax incentive program via both
alternatives: location and job creation. The contribution of the paper
is to inform policymakers about the potential opportunities and
pitfalls when designing incentive strategies. This is particularly
relevant, given that both the US and Europe have been promoting
incentives as a tool for regional economic development.