The Wizard of OZ (Opportunity Zones): Spatial Spillovers in Place-Based Programs

Dibya Deepta Mishra (), Robin C. Sickles () and Yanfei Sun ()
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Dibya Deepta Mishra: Rice University
Robin C. Sickles: Rice University
Yanfei Sun: Toronto Metropolitan University

A chapter in Seven Decades of Econometrics and Beyond, 2025, pp 181-208 from Springer

Abstract: Abstract The Opportunity Zones (OZ) program, as the largest ongoing place-based development program in the U.S., was intended to stimulate investment and drive economic growth in low-income areas by lowering capital gains tax rates. This paper investigates the spatial spillover effects of the OZ due to their interconnections with high-income neighboring areas. Using two-way fixed effects, synthetic difference in-differences, and spatial difference-in-differences, we study the impact of OZ on housing prices and nighttime light emissions in the largest state by area in the continental US, Texas. Our empirical results indicate that census tracts located near more developed regions exhibit a stronger response to the OZ program due to the presence of spillover effects. One of the governing factors of these policies is the number of high-income neighbors. However, they play the role of a double-edged sword. A large number of high-income neighbors will make the tract in question not as attractive for investment, even in the presence of tax breaks. This is because the neighbors will provide higher returns. If a census tract is surrounded by some high-income neighbors and there is scope of future return, it may provide incentives for investing. We provide evidence of this trade-off in our paper and also show how these effects should be considered carefully when designing place-based policies, especially when providing location-based tax breaks as in the Opportunity Zone program.

Date: 2025
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DOI: 10.1007/978-3-031-92699-0_6

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