We build a model of trade and location with two countries which differ with respect to their level of productivity. Public expenditures are shared between a subsidy to firms reducing the labor cost and another one to households. We show that the high-productivity country pays a lower net subsidy to each firm than does the other country. Nevertheless, the high-productivity country succeeds in attracting a majority of firms and invests more public expenditures for firms and households if trade cost are high enough. Finally, the welfare analysis suggests that the non-cooperative level of net subsidy to firms can be inefficiently low in the high-productivity country under some conditions -- such as the distribution of profits and the level of t...