Empowerment for whom? The impact of community renewal tax incentives on jobs and businesses

Abstract

Some postulate that spatially targeted grants and tax cuts stimulate jobs and establishment openings, and reduce closures in distressed urban neighbourhoods. The scholarly literature is mixed and mostly argues that at best these programmes have no impact and at worst raise land rents, spurring gentrification. The USA designated three rounds of Renewal Communities, Empowerment Zones or Enterprise Communities (RC/EZ/EC) to receive wage credits or grants. While others have estimated the impact of Round I EZ/ECs, this article estimates the impact of more recent rounds in Tennessee and California on job and businesses using propensity score matching. Data are presented by RC/EZ for retail, very small and minority establishments. Jobs increased in RC/EZs compared with control areas during the wage credit period. In general, establishment openings rose for small establishments but fell for retail. Closures overall fell. Future place-based initiatives should be strategic about industry mix and minority establishments.

Did the Community Renewal Tax Incentives Pirate Businesses From Other Places?

“…After matching tracts within each Round I city except Camden, they conclude that jobs and business investment, measured by the 3-year moving average of business loans in constant dollars, improved in all EZs except Atlanta but was not statistically significant because of the small sample size. The Santa Ana EZ, Los Angeles RC, San Diego RC, and San Francisco RC each saw statistically significant reductions in business closures; however, Smith (2015) does not distinguish openings and closures from relocations. In the first article to assess later rounds of EZs, Smith (2015) uses propensity score matching for tracts within the same state and finds statistically significant positive impacts on jobs and business openings, with a small reduction in business closings.…”

“…Rich and Stoker (2010) argue that pooling estimates across EZs is inappropriate because each EZ really employed a different policy treatment as each city customized its strategic plan. In the first article to assess later rounds of EZs, Smith (2015) uses propensity score matching for tracts within the same state and finds statistically significant positive impacts on jobs and business openings, with a small reduction in business closings. They argue that the hypothesis test is less important than the effect sizes for policy purposes because local government is interested in seeing changes and is less concerned about whether the change happened by chance.…”

Phase 3 empowerment zones: The case of Tucson

“…Pertinent literature on round 3 is hardly existent. Most round 1 and 2 studies suggest that the impact of the EZs on many socioeconomic variables is unclear (Oakley & Tsao, ; Oakley & Tsao, ; Smith, ).…”

“…The designation also increased the rents, thus stimulating at least some gentrification. Smith (), investigating selected round 2 and 3 zones, finds some positive impact on the employment but mixed overall results. Generally, the findings from relevant previous studies suggest limited positive effects of the EZ on various variables related to the program goals.…”

“…Because of its commitment to both attracting businesses and empowering communities, the program had comprehensive character (Gittell, Newman, Bockmeyer, & Lindsay, 1998;Gittell, Newman, & Pierre-Louis, 2001;Jenkins & Bennett, 1999;Joseph & Levy, 2002;Mulock, 2002;Lawrence, Stoker, & Wolman, 2010;Rubin, 1994;Wang & van Loo, 1998). Applicants submitted a formal application and a strategic plan demonstrating strong collaboration among all anticipated stakeholders, such as residents, community organizations, businesses, financial institutions, service providers, and state and local governments (The U.S. Government Accountability Office [GAO], 2004[GAO], , 2010Gittell et al, 2008;Gittell et al, 2001;Hyman, 1998;Smith, 2014;Wallace, 2003). Designated communities were selected on the basis of key selection criteria including poverty and unemployment rates, population limits, and area size (Table A1).…”