Vision to Reality: The Reut Blog

The Bank of Israel recently published research which examines the impact of capital grants and tax benefits resulting from the Capital Investment Encouragement Law on economic activity in the periphery.

The researchers found capital grants and tax benefits could help the level of worker productivity in industrial plants in the periphery catch up with industrial plants in the center of Israel. However, it also concluded that these grants and benefits did not contribute to increased investments and employment nor reduce the gap in living standards and wages relative to the center of the country.

These findings are consistent with OECD studies showing that targeted investment towards removing barriers for an area being able to utilize its relative advantages are better for industrial enterprises than generic subsidies and tax benefits. A more relevant government input to maximize the north’s relative advantages would thus be targeted investment, such as in technology education (something already identified by Stef Wertheimer).