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The Effect of Enterprise Zone-Related Tax Savings on Economic Development: A Generalized Propensity Score Approach

Anita Yadavalli ()
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Anita Yadavalli: City Fiscal Policy, National League of Cities, 660 N. Capitol St. NW, Washington, D.C. 20001, U.S.A.

Review of Economics & Finance, 2017, vol. 10, 83-96

Abstract: Since their onset in the early 1980s, enterprise zones (EZ) have been utilized for the revitalization of traditional downtown areas or old industrial and manufacturing areas that have undergone a protracted period of decline. Businesses within EZs often receive some combination of labor and/or capital tax incentives. This article examines various measures of economic development during the period 2006 to 2015 for Indiana firms receiving at least one tax incentive. This relationship is examined using a generalized propensity score model in an effort to remove the potential endogeneity between tax savings to each EZ business and economic development. The results suggest that, on average, employment tends to rise more significantly for firms receiving a modest amount in tax incentives than for those receiving above-average amounts. However, this is not the case for capital investment, where firms receiving modest amounts do not invest any differently than firms receiving above-average amounts. Additionally, the results suggest that fewer savings are being translated into higher wages for employees as firms continue to receive tax incentives.

Keywords: Enterprise zones; Economic development; Employment; Wages; Capital investment; Generalized propensity score (search for similar items in EconPapers)
JEL-codes: C21 H25 O12 (search for similar items in EconPapers)
Date: 2017
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Handle: RePEc:bap:journl:170407