Article2010

DO LOCATION-BASED TAX INCENTIVES ATTRACT NEW BUSINESS ESTABLISHMENTS?*

99 citations0/0 files storedJournal of Regional Science

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Economic Zones and Regional Development Local Government Finance and Decentralization Regional Economics and Spatial Analysis

Abstract

ABSTRACT This paper examines how offering tax incentives in a local area affects the entry of new business establishments. We use the federal Empowerment Zone (EZ) program as a natural experiment to test this relationship. Using instrumental variables estimation, we find that the EZ wage tax credit is responsible for attracting about 2.2 new establishments per 1,000 existing establishments, or a total of 20 new establishments in EZ areas. New establishment growth is strongest in the retail (about 40 new establishments) and service (about five new establishments) sectors, and offset by declines or slower growth in other industries.

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References

2003Geography, Industrial Organization, and Agglomeration 2010Identifying Agglomeration Spillovers: Evidence from Winners and Losers of Large Plant Openings 1999The Geographic Concentration of Industry: Does Natural Advantage Explain Agglomeration?1998The Effect of State Policies on the Location of Manufacturing: Evidence from State Borders 1985Business Location Decisions in the United States: Estimates of the Effects of Unionization, Taxes, and Other Characteristics of States 2010Housing and urban development 2007Firm location decisions, regional grants and agglomeration externalities 2009EMPIRICAL STUDIES IN INDUSTRIAL LOCATION: AN ASSESSMENT OF THEIR METHODS AND RESULTS*

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