Do Enterprise Zones Work? An Analysis at the Borders

Abstract

This paper analyzes Enterprise Zones in Colorado in order to study the relationship between geographically targeted tax credits and the location of new businesses and jobs. Enterprise Zone (EZ) programs provide tax incentives for investment and job creation in economically lagging regions. While most states have EZ programs, past program evaluations have found a mixture of effectiveness. This research improves upon existing literature by utilizing both establishment-level data and a border effects methodology to: 1) control for unobservables that influence the self-selection of EZ regions and 2) highlight EZ impacts across different industries. Results find that while EZ fiscal incentives have no impact on where new establishments locate in Colorado, they do increase the number of employees hired. Industry results highlight the heterogeneity of tax credit impacts within the EZ Program. Results are robust to a variety of specifications for land use controls and in comparison to a propensity score matching model.

Keywords: Enterprise Zones, State and Local Economic Development, Taxes and Location of Economic Activity

JEL Classification: H25, H71, R12