Impact of the enterprise zone
AbstractEnterprise zones are place-oriented policies that are a tool of regional development, and refer to geographically targeted areas chosen for development that are designated on the basis of unemployment, poverty, population, age of housing stock, and other criteria. Firms that locate in the area and create jobs are given tax credits, abatements and exemptions. The underlying assumption is that firms and employees in the zone area benefit because of a reduction in the price of capital and/or labour, and there is expanded investment and employment generation through deregulation. The objective of this work is to answer what is the impact of the enterprise zone (EZ) on the rest of the economy and labour. I develop a theoretical model. In the model I point to the cause of unemployment in the EZ. I show the relationship between the reservation wage and unemployment rate, following Jones (1989). I then show the general equilibrium response to the tax abatement provided in EZs, in a generalised framework incorporating capital mobility, following Harberger (1962). The analytical framework developed indicates that the capital and employment impact of the tax cut on capital in the EZ depends on three sets of parameters: · Relative factor intensities of firms in the two areas. · The elasticity of substitution between capital and labour in firms in the areas. · The price elasticities of demand for goods Z and Y produced by EZ firms and non-EZ firms respectively The analysis also indicates that it is impossible to isolate the incidence of the tax cut given in the EZ just to the EZ alone.
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Bibliographic InfoPaper provided by National Institute of Public Finance and Policy in its series Working Papers with number 04/19.
Date of creation: Jun 2004
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Note: Working Paper 19, 2004
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Web page: http://www.nipfp.org.in
Enterprise zones ; Regional development ; Tax incentives;
Find related papers by JEL classification:
- R12 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Size and Spatial Distributions of Regional Economic Activity; Interregional Trade (economic geography)
- R13 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - General Equilibrium and Welfare Economic Analysis of Regional Economies
- R38 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Production Analysis, and Firm Location - - - Government Policy; Regulatory Policy
- R58 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Regional Government Analysis - - - Regional Development Planning and Policy
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Bhatia, Kul B., 1981. "Intermediate goods and the incidence of the corporation income tax," Journal of Public Economics, Elsevier, vol. 16(1), pages 93-112, August.
- Jones, Stephen R G, 1989. "Reservation Wages and the Cost of Unemployment," Economica, London School of Economics and Political Science, vol. 56(222), pages 225-46, May.
- Boarnet, Marlon G. & Bogart, William T., 1996. "Enterprise Zones and Employment: Evidence from New Jersey," Journal of Urban Economics, Elsevier, vol. 40(2), pages 198-215, September.
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