because the goals of encouraging local economic activity and providing jobs
to disadvantaged zone residents are typically quite clear. For these programmes, the research shows that the cost per new job per zone resident is
quite high, and probably exceeds $40 000 per year.
Clearly, there is room for additional research on the effects of tax abatements
and enterprise zones. One of the obvious dangers in evaluating programmes
such as enterprise zones is that they are likely to be established in areas with
unusually high unemployment or at times when unemployment is at a peak.
As a consequence of these extreme starting points, the unemployment rate is
likely to go down relative to other areas or over time even in the absence of
the programme. This observation makes it particularly important that control
groups be used in the evaluation. Ideally, the control group should be randomly chosen. For example, the state might randomly select areas for enterprise zone designation from among a number of areas applying for zone
status. The areas not selected could then be used as control groups with
which the outcomes in the participating zones could be compared. The use of
comparable areas as controls will directly address the challenge of determining what would have happened in the zone in the absence of the tax abatement programme. However, it does not address the other thorny analytical
question of whether the new jobs in the zone represent net new jobs for the
metropolitan area or simply jobs that were transferred from nearby areas.
See Chapter 8 for new work by William Fox and Matthew Murray on tax incentives
designed to attract large new firms in rural areas.
One exception is the work by Robert Wassmer (see, for example, Wassmer, Urban Studies),
who examines the impact of tax abatements and other local development strategies on
business activity. He concludes that local fiscal incentives typically have little or no effect
on local business activity as measured by employment or value added. Moreover, the
effectiveness of such incentives appears to vary with the characteristics of the community.
For example, Wassmer found that tax abatements for industrial property were more likely
to induce additional manufacturing activity only in the communities that were the least
desirable for manufacturing, namely those with high housing density and old capital stock.
Whether his findings are generalizable to other metropolitan areas remains to be investigated.
3. For empirical evidence that communities emulate others with respect to the granting of
abatements, see Anderson and
Wassmer ( 1995). For the first 15 years of the abatement
programme, municipalities in the Detroit metropolitan area became increasingly willing to
end their spells of non-abatement to emulate their neighbouring communities. 5.
The Act authorizes the Secretary of Housing and Urban Development to designate six
urban and three rural empowerment zones, and 65 urban and 30 rural enterprise communities. The goal of the programme is to build communities and empower residents of distressed areas so that they may prosper. The tax incentives include a 20 per cent tax credit
covering the first $15 000 of wages and certain types of training that a business provides to
Questia, a part of Gale, Cengage Learning. www.questia.com
Book title: Local Government Tax and Land Use Policies in the United States:Understanding the Links.
Contributors: Helen F. Ladd - Author, Lincoln Institute of Land Policy - OrganizationName.
Publisher: Edward Elgar.
Place of publication: Cheltenham,UK.
Publication year: 1998.
Page number: 128.
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