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The Effect of Capital Gains Taxes on Business Creation and Employment: The Case of Opportunity Zones

Author

Listed:
  • Alina Arefeva

    (Wisconsin School of Business, University of Wisconsin-Madison, Madison, Wisconsin 53706)

  • Morris A. Davis

    (Rutgers Business School, Rutgers University, New Brunswick, New Jersey 08854)

  • Andra C. Ghent

    (David Eccles School of Business, University of Utah, Salt Lake City, Utah 84112)

  • Minseon Park

    (University of Michigan, Ann Arbor, Michigan 48105)

Abstract

The Tax Cuts and Jobs Act of 2017 established a new program called Opportunity Zones (OZs) that reduces or eliminates capital gains taxes on investment in a limited number of low-income Census tracts. We provide a model illustrating how a change in capital taxation affects employment in existing and new establishments. We then use establishment-level data to show that, in its first two years, the OZ designation increased employment growth relative to comparable tracts by between 3.0 and 4.5 percentage points in metropolitan areas. The job growth occurred in multiple industries and persisted into 2021 rather than quickly disappearing. However, most of the jobs created by the program were likely taken by residents who live outside of the designated tracts, consistent with only 5% of U.S. residents working in the same Census tract as the one in which they live.

Suggested Citation

  • Alina Arefeva & Morris A. Davis & Andra C. Ghent & Minseon Park, 2025. "The Effect of Capital Gains Taxes on Business Creation and Employment: The Case of Opportunity Zones," Management Science, INFORMS, vol. 71(6), pages 4566-4581, June.
    • Handle: RePEc:inm:ormnsc:v:71:y:2025:i:6:p:4566-4581
    DOI: 10.1287/mnsc.2022.03223
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