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A Long-Term Evaluation of the First Generation of the French Urban Enterprise Zones

  • Corentin Trevien
  • Pauline Givord
  • Simon Quantin

This paper provides new empirical evidence on the long-run efficiency of locally targeted tax incentives in revitalizing distressed areas. We focus on the first generation of the French “Enterprise Zone†(EZ) initiative, implemented in 1997 in continental France. This program provides tax incentives to firms located in designated areas plagued by social and economic difficulties. Compared to EZs in the US and the UK, French Enterprise Zones offer generous tax reductions, but these subsidies are limited to small firms with less than fifty employees. To our knowledge, the first generation of French EZs has not yet been evaluated on a national scale. A very rich georeferenced panel dataset is used to identify the impact of the EZ policy. Our identification strategy relies on the selection mechanism employed by the French government: designated EZs were selected according to a deprivation index based on various socio-economic criteria. Besides, in order to qualify as an EZ, an urban area must have a population of over 10,000. Consequently, a pool of deprived urban areas was left untreated because of this threshold whereas it was similar to selected areas in terms of economic development. We use two different empirical methods: a combination of regression and sub-classification on the propensity score, and a regression discontinuity design method. Both methods yield similar results. We highlight a strong positive impact of this policy on employment and business location during the first years of the policy. Detailed estimates moderate this initial favourable assessment. First, the EZ effect is partially offset after the initial five-year period of full tax exemptions by more frequent business discontinuations. We simulate actual tax reliefs at a firm-level at the beginning of the policy and ten years after in order to explain this waning effect. We highlight the fact that the introduction of generous payroll tax deductions at a national scale in 2003 reduced the attractiveness of targeted areas. Second, while firms already operating also benefit from tax exemptions, no significant impact on their employment level can be detected. Besides, this policy promotes sectors of activity that weakly stimulate local employment and development. Overall, these results suggest that firms are sensitive to tax cuts but call into question the capacity of EZs to improve local economy. Keywords: Enterprise Zones, Local Employment, Propensity Score Matching, Evaluation. JEL: C23, H71, R5

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Paper provided by European Regional Science Association in its series ERSA conference papers with number ersa12p776.

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Date of creation: Oct 2012
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Handle: RePEc:wiw:wiwrsa:ersa12p776
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  1. Jed Kolko & David Neumark, 2009. "Do Some Enterprise Zones Create Jobs?," NBER Working Papers 15206, National Bureau of Economic Research, Inc.
  2. Guido Imbens & Thomas Lemieux, 2007. "Regression Discontinuity Designs: A Guide to Practice," NBER Technical Working Papers 0337, National Bureau of Economic Research, Inc.
  3. Laurent Gobillon & Thierry Magnac & Harris Selod, 2010. "Do Unemployed Workers Benefit from Enterprise Zones ? The French Experience," Working Papers 2010-45, Centre de Recherche en Economie et Statistique.
  4. Gilles Duranton & Laurent Gobillon & Henry G. Overman, 2011. "Assessing the effects of local taxation using microgeographic data," LSE Research Online Documents on Economics 41367, London School of Economics and Political Science, LSE Library.
  5. Battistin, Erich & Rettore, Enrico, 2008. "Ineligibles and eligible non-participants as a double comparison group in regression-discontinuity designs," Journal of Econometrics, Elsevier, vol. 142(2), pages 715-730, February.
  6. Pauline Givord & Roland Rathelot & Patrick Sillard, 2011. "Place-based Tax Exemptions and Displacement Effects : An Evaluation of the Zones Franches Urbaines Program," Working Papers 2011-19, Centre de Recherche en Economie et Statistique.
  7. Leslie E. Papke, 1991. "Tax Policy and Urban Development: Evidence From The Indiana Enterprise Zone Program," NBER Working Papers 3945, National Bureau of Economic Research, Inc.
  8. Laurent Gobillon & Thierry Magnac & Harris Selod, 2012. "Do unemployed workers benefit from enterprise zones? The French experience," PSE - Labex "OSE-Ouvrir la Science Economique" hal-00812979, HAL.
  9. Roland Rathelot & Patrick Sillard, 2008. "The Importance of Local Corporate Taxes in Business Location Decisions: Evidence From French Micro Data," Economic Journal, Royal Economic Society, vol. 118(527), pages 499-514, 03.
  10. Bondonio, Daniele & Greenbaum, Robert T., 2007. "Do local tax incentives affect economic growth? What mean impacts miss in the analysis of enterprise zone policies," Regional Science and Urban Economics, Elsevier, vol. 37(1), pages 121-136, January.
  11. Heckman, James J & Ichimura, Hidehiko & Todd, Petra, 1998. "Matching as an Econometric Evaluation Estimator," Review of Economic Studies, Wiley Blackwell, vol. 65(2), pages 261-94, April.
  12. Matias Busso & Patrick Kline, 2008. "Do Local Economic Development Programs Work? Evidence from the Federal Empowerment Zone Program," Cowles Foundation Discussion Papers 1639, Cowles Foundation for Research in Economics, Yale University.
  13. Hahn, Jinyong & Todd, Petra & Van der Klaauw, Wilbert, 2001. "Identification and Estimation of Treatment Effects with a Regression-Discontinuity Design," Econometrica, Econometric Society, vol. 69(1), pages 201-09, January.
  14. Andrew Hanson & Shawn Rohlin, 2011. "The Effect of Location-Based Tax Incentives on Establishment Location and Employment across Industry Sectors," Public Finance Review, , vol. 39(2), pages 195-225, March.
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