Do business support policies improve firm outcomes and spur employment? Do they lead to unwanted distortions in firm behavior? In this paper I look at a large-scale government program that incentivized fixed asset investments in Germany. For identification, I exploit a jump of the subsidy rate at a firm size threshold. In combination with changes in this rate over time I implement a difference-in-differences estimation and find that a reduction in capital costs leads to larger investments, larger revenue and more employment for all skill groups within firms. To better understand the adjustment behavior of firms I adapt the bunching estimation approach of Garicano et al (2016) by incorporating optimal capital choice and estimate production function parameters.