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Tax Costs and Employment Benefits of Enterprise Zones

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  • Kala Seetharam Sridhar

    (Ohio State University)

Abstract

This article answers a challenge raised against traditional economic development policy; recent research has shown that such policies, far from being zero sum, have positive-sum effects. The article examines these questions: Are the local benefits of tax incentives greater than the costs? Specifically, are benefits greatest in high-unemployment areas because of low reservation wages? If so, do such policies produce net benefits for a region, even if they redistribute jobs? To answer these questions, reservation wages are estimated as a function of unemployment. Net benefits and costs from new and relocated jobs are compared. The results indicate that overall local benefits are greater than the local costs of providing tax incentives. However untargeted provision of incentives is not recommended, even in high-unemployment areas. The article provides an alternative approach toward traditional policies and demonstrates that such policies do produce net benefits for the locality adopting them.

Suggested Citation

  • Kala Seetharam Sridhar, 1996. "Tax Costs and Employment Benefits of Enterprise Zones," Economic Development Quarterly, , vol. 10(1), pages 69-90, February.
  • Handle: RePEc:sae:ecdequ:v:10:y:1996:i:1:p:69-90
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    File URL: http://edq.sagepub.com/content/10/1/69.abstract
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    Cited by:

    1. Felsenstein, Daniel & Fleischer, Aliza, 1999. "Capital Assistance and Small Firm Growth: Implications for Regional Economic Welfare," ERSA conference papers ersa99pa395, European Regional Science Association.
    2. repec:ind:nipfwp:19 is not listed on IDEAS
    3. repec:npf:wpaper:19 is not listed on IDEAS
    4. Donald Haurin & Kala Sridhar, 2003. "The impact of local unemployment rates on reservation wages and the duration of search for a job," Applied Economics, Taylor & Francis Journals, vol. 35(13), pages 1469-1476.
    5. Richard E. Kaglic & William A. Testa, 1999. "Slow work force growth: a challenge for the Midwest?," Economic Perspectives, Federal Reserve Bank of Chicago, issue Q II, pages 31-46.
    6. repec:ind:nipfwp:04 is not listed on IDEAS
    7. Sridhar, Kala Seetharam, 2000. "Tax Incentive Programs and Unemployment Rate," The Review of Regional Studies, Southern Regional Science Association, vol. 30(3), pages 275-298, Winter.
    8. repec:npf:wpaper:04 is not listed on IDEAS
    9. Daniel Felsenstein & Aliza Fleischer & Adi Sidi, 1998. "Market failure and the estimation of subsidy size in a regional entrepreneurship programme," Entrepreneurship & Regional Development, Taylor & Francis Journals, vol. 10(2), pages 151-165, January.
    10. Seetharam Sridhar, Kala, 2001. "Benefits and Costs of Regional Development: Evidence from Ohio's Enterprise Zone Program," Journal of Regional Analysis and Policy, Mid-Continent Regional Science Association, vol. 31(2).

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