Tax Incentive Programs and Unemployment Rate

Abstract

This paper answers the question: What are the effects of tax incentive programs on an area’s unemployment rate? A model is developed that describes the determination of unemployment in an enterprise zone. The estimation of unemployment rate using Census data for Ohio, taking into account the treatment effects problem, shows that such programs have a significant impact in reducing unemployment. The net impact of being an enterprise zone for a duration of one year is approximately a 3 percentage point reduction in area unemployment. The results also suggest that three to five years could be the optimum period for offering incentives.

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