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Do Tax Incentives Affect Local Economic Growth? What Mean Impacts Miss in the Analysis of Enterprise Zone Policies

September 2003

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  Authors: Robert T Greenbaum, John B Engberg

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  Since the early 1980s, a vast majority of states have implemented enterprise zones. This paper examines the impact of zone programs in the urban areas of six states on business outcomes, the main target of zone incentives. The primary source of outcome data is the U.S. Bureau of Census' Longitudinal Research Database (LRD), which tracks manufacturing establishments over time. Matched sample and geographic comparison groups are created to measure of the impact of zone policy on employment, establishment, shipment, payroll, and capital spending outcomes. Consistent with previous research findings, the difference in difference estimates indicate that zones appears to have little impact on average. However, by exploiting the establishment-level data, the paper finds that zones have a positive impact on the outcomes of new establishments and a negative impact on the outcomes of previously existing establishments.
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• Working Paper

  
  
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• Working Paper

  
  
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  June 2021

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  We evaluate the effects of one of a new generation of economic development programs, the California Competes Tax Credit (CCTC), on local job creation. Incorporating perceived best practices from previous initiatives, the CCTC combines explicit eligibility thresholds with some discretion on the part of program officials to select tax credit recipients. The structure and implementation of the program facilitates rigorous evaluation. We exploit detailed data on accepted and rejected applicants to the CCTC, including information on scoring of applicants with regard to program goals and funding decisions, together with restricted access American Community Survey (ACS) data on local economic conditions. Using a difference-in-differences approach, we find that each CCTC-incentivized job in a census tract increases the number of individuals working in that tract by over two ' a significant local multiplier. We also explore the program's distributional implications and impacts by industry. We find that CCTC awards increase employment among workers residing in both high income and low income communities, and that the local multipliers are larger for non-manufacturing awards than for manufacturing awards.
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• Working Paper

  
  
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  March 2007

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  CES-07-06

  Competition among state and local governments to lure businesses has attracted considerable interest from economists, as well as legislators and policy makers. This paper quantifies the role of plant relocations in the geographic redistribution of manufacturing employment and examines the effectiveness of state development policy. Only a few studies have looked at how manufacturing firms locate their production facilities geographically; they have used either small manufacturing samples or small geographic regions. This paper provides broader evidence of the impact of plant relocations using confidential establishment level data from the U.S. Census Longitudinal Research Database (LRD), covering the full population of manufacturing establishments in the United States over the period from 1972 to 1992. This paper finds a relatively small role for relocation in explaining the disparity of manufacturing employment growth rates across states. Moreover, it finds evidence of very weak effects of incentive programs on plant relocations.
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• Working Paper

  
  
  State Taxation and the Reallocation of Business Activity: Evidence from Establishment-Level Data
  

  January 2017

  Authors: Xavier Giroud, Joshua Rauh

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  CES-17-02

  Using Census microdata on multi-state firms, we estimate the impact of state taxes on business activity. For C corporations, employment and the number of establishments have corporate tax elasticities of -0.4, and do not vary with changes in personal tax rates. Pass-through entity activities show tax elasticities of -0.2 to -0.3 with respect to personal tax rates, and are invariant with respect to corporate tax rates. Reallocation of productive resources to other states drives around half the effect. Capital shows similar patterns but is 36% less elastic than labor. The responses are strongest for firms in tradable and footloose industries.
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• Working Paper

  
  
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  February 2011

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  This paper empirically assesses the incidence and efficiency of Round I of the federal urban Empowerment Zone (EZ) program using confidential microdata from the Decennial Census and the Longitudinal Business Database. Using rejected and future applicants to the EZ program as controls, we find that EZ designation substantially increased employment in zone neighborhoods and generated wage increases for local workers without corresponding increases in population or the local cost of living. The results suggest the efficiency costs of first Round EZs were relatively small.
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  The Effect of Class Size on Teacher Attrition: Evidence from Class Size Reduction Policies in New York State
  

  February 2010

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  CES-10-05

  Starting in 1999, New York State implemented class size reduction policies targeted at early elementary grades, but due to funding limitations, most schools reduced class size in some grades and not others. I use class size variation within a school induced by the policies to construct instrumental variable estimates of the effect of class size on teacher attrition. Teachers with smaller classes were not significantly less likely to leave schools in the full sample of districts but were less likely to leave a school in districts that targeted the same grade across schools. District-wide class size reduction policies were more likely to persist in the same grade in the next year, suggesting that teacher expectations of continued smaller classes played a role in their decision whether or not to leave a school. A decrease in class size from 23 to 20 students (a decrease of one standard deviation) under a district-wide policy decreases the probability that a teacher leaves a school by 4.2 percentage points.
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• Working Paper

  
  
  Do SBA Loans Create Jobs? Estimates from Universal Panel Data and Longitudinal Matching Methods
  

  September 2012

  Authors: J. David Brown, John S. Earle

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  CES-12-27

  This pape reports estimates of the effects of the Small Business Administration (SBA) 7(a) and 504 loan programs on employment. The database links a complete list of all SBA loans in these programs to universal data on all employers in the U.S. economy from 1976 to 2010. Our method is to estimate firm fixed effect regressions using matched control groups for the SBA loan recipients we have constructed by matching exactly on firm age, industry, year, and pre-loan size, plus kernel-based matching on propensity scores estimated as a function of four years of employment history and other variables. The results imply positive average effects on loan recipient employment of about 25 percent or 3 jobs at the mean. Including loan amount, we find little or no impact of loan receipt per se, but an increase of about 5.4 jobs for each million dollars of loans. When focusing on loan recipients and control firms located in high-growth counties (average growth of 22 percent), places where most small firms should have excellent growth potential, we find similar effects, implying that the estimates are not driven by differential demand conditions across firms. Results are also similar regardless of distance of control from recipient firms, suggesting only a very small role for displacement effects. In all these cases, the results pass a "pre-program" specification test, where controls and treated firms look similar in the pre-loan period. Other specifications, such as those using only matching or only regression imply somewhat higher effects, but they fail the pre-program test.
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  CES-07-31

  In a seminal article, Benjamin Chinitz (1961) focused attention on the effects that industry size, structure, and economic diversification have on firm performance and regional economies. He also raised a related but conceptually distinct question that has been overlooked since: how does the extent to which a regional industry is concentrated in a single or small number of firms impact the performance of other local firms within that industry? He suggested that such regional industrial dominance may impact input prices, limit capital accessibility, deter entrepreneurial activity, and reduce the regional availability of agglomeration economies such as specialized labor and supply pools In this paper, we use an establishment-level production function to quantify the links between industrial dominance, agglomeration economies, and firm performance. We consider two questions. First, do greater levels of regional industrial dominance lead to lower economic performance by small, dominated manufacturing plants? Second, are small plants in dominated regional industries more limited in capturing regional agglomeration benefits and therefore do they face rigidities in deploying production factors to maximum advantage? Our results suggest that regional industrial organization does influence productivity but that the effect tends to be a direct one, rather than an indirect effect via its influence on agglomeration economies.
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