The Ministry of Economy and Industry subsidizes between 30 and 91 percent of land development costs in industrial areas in the periphery of the country in order to encourage economic activity there. This study examines the effect of the subsidy rates on demand for land in the industrial areas between 2006 and 2015, relying on the marked variance in subsidy rates over time and area, and using administrative data sources.

The findings of the study show that an increase of one percentage point in the subsidy rate in an industrial area increases the number of requests for land in that area by 1.6 percent (elasticity of about 0.3), the number of approved requests by a similar amount, and the requested area by 1.0 percent. In the range of 30 to 80 percent subsidy, increasing the subsidy rate has no marginal effect on demand for land, while in the range above that, the effect increases at a growing rate. The subsidy’s effect is stronger in the north of the country and in large industrial areas, and no difference was found in the subsidy’s contribution to demand for land between industrial areas in Jewish or Arab localities.