Local Government Tax and Land Use Policies in the United States: Understanding the Links

By Helen F. Ladd; Lincoln Institute of Land Policy | Go to book overview

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.


NOTES
1.
See Chapter 8 for new work by William Fox and Matthew Murray on tax incentives designed to attract large new firms in rural areas.
2.
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.
4.
This discussion draws heavily on Ladd ( 1994).
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

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