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What Do We Know about Enterprise Zones?

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  • Leslie E. Papke

Abstract

In the last decade, most states have targeted certain depressed areas for revitalization by providing a combination of labor and capital tax incentives to firms operating in an "enterprise zone" (EZ). A partial equilibrium model is used to analyze the theoretical effects of various EZ incentives on zone wages and employment. I review empirical evidence on the operational success of EZ programs in Britain and the U.S., and present new evidence from the 1990 Census on the success of the Indiana program. Most British zone businesses are relocations, with an annual cost per job of approximately $15,000. U.S. surveys find that much zone activity comes from expansions of existing businesses, with the average cost per zone job ranging from $4,564 to $13,000 annually (about $31,113 per zone resident job). How do zones perform relative to what would have been their performance in the absence of zone designation? Evidence on this issue is summarized for the state of Indiana, where the zone program appears to have increased inventory investment and reduced unemployment claims. But new evidence based on the 1990 Census of Population indicates that the economic well-being of zone residents in Indiana has not appreciably improved.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 4251.

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Date of creation: Jan 1993
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Publication status: published as What Do We Know about Enterprise Zones? , Leslie E. Papke. in Tax Policy and the Economy, Volume 7 , Poterba. 1993
Handle: RePEc:nbr:nberwo:4251

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  1. McLure, Charles E, Jr, 1970. "Taxation, Substitution, and Industrial Location," Journal of Political Economy, University of Chicago Press, vol. 78(1), pages 112-32, Jan.-Feb..
  2. Bradford, David F., 1978. "Factor prices may be constant but factor returns are not," Economics Letters, Elsevier, vol. 1(3), pages 199-203.
  3. Chinhui Juhn & Kevin M. Murphy & Robert H. Topel, 1991. "Why Has the Natural Rate of Unemployment Increased over Time?," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 22(2), pages 75-142.
  4. R A Erickson & S W Friedman, 1990. "Enterprise zones: 1. Investment and job creation of state government programs in the United States of America," Environment and Planning C: Government and Policy, Pion Ltd, London, vol. 8(3), pages 251-267, June.
  5. Bartik, Timothy J, 1985. "Business Location Decisions in the United States: Estimates of the Effects of Unionization, Taxes, and Other Characteristics of States," Journal of Business & Economic Statistics, American Statistical Association, vol. 3(1), pages 14-22, January.
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