Based on the micro data of China’s multinational manufacturing listed companies from 2015 to 2018, this paper uses the Two-tier Stochastic Model to measure the incentive effect, inhibition effect, and net effect of government subsidies on enterprise innovation. The results show that the impact of government subsidies on enterprise innovation is the result of the combination of incentive effect and inhibition effect, which will eventually lead to the negative deviation of enterprise innovation level from the frontier innovation level. From the perspective of quantile, for most enterprises, government subsidies will inhibit the improvement of their innovation level, but there are still some enterprises that can benefit more from the incentive of government subsidies. From the perspective of time distribution and regional differences, the net effect of government subsidies is decreasing year by year, and the inhibition effect of the eastern region is higher than that of the central and western regions.