The impact of enterprise zones on local economies
Abstract
During the last decade, a new government designed tool to help revitalize depressed areas has been considered. This tool, known as enterprise zones, provides tax incentives to firms which locate or expand in a designated area chosen because of the level of economic distress. Little formal econometric work has been done thus far in the analysis of enterprise zones. Most studies have reported the amount of job growth or increased investment without accounting for contemporaneous macroeconomic trends. This paper begins with some background information concerning the concept of enterprise zones. Some of the major recent studies are discussed. A description of the Indiana Enterprise Zone Program including the criteria for areas to be eligible, the incentives offered and the administrative structure of the program is presented. Data concerning each of the zone communities is analyzed to provide further information about the Zone program in Indiana. To study the theoretical basis for enterprise zones, a model studying the microfoundations of the impact of enterprise zone tax credits on investment and employment is developed. It is determined that the elasticity of employment with respect to the tax credit is very inelastic indicating that the impact on employment will be minimal. This model is then tested empirically using data from nine zones in Indiana to ascertain the effectiveness of enterprise zones in increasing employment in the communities in which the zones are located. The results indicate that the zone program is having little impact on employment in the zone communities, which concurs with the theoretical results.
Degree
Ph.D.
Advisors
Kadiyala, Purdue University.
Subject Area
Economics
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