Do Location‐Based Tax Incentives Attract New Business Establishments?

23 Pages Posted: 27 Jul 2011

See all articles by Andrew Hanson

Andrew Hanson

Marquette University- Department of Economics

Shawn Rohlin

University of Akron

Date Written: August 2011

Abstract

This paper examines how offering tax incentives in a local area affects the entry of new business establishments. We use the federal Empowerment Zone (EZ) program as a natural experiment to test this relationship. Using instrumental variables estimation, we find that the EZ wage tax credit is responsible for attracting about 2.2 new establishments per 1,000 existing establishments, or a total of 20 new establishments in EZ areas. New establishment growth is strongest in the retail (about 40 new establishments) and service (about five new establishments) sectors, and offset by declines or slower growth in other industries.

Suggested Citation

Hanson, Andrew and Rohlin, Shawn, Do Location‐Based Tax Incentives Attract New Business Establishments? (August 2011). Journal of Regional Science, Vol. 51, Issue 3, pp. 427-449, 2011. Available at SSRN: https://ssrn.com/abstract=1895920 or http://dx.doi.org/10.1111/j.1467-9787.2010.00704.x

Andrew Hanson (Contact Author)

Marquette University- Department of Economics ( email )

P.O. Box 1881
Milwaukee, WI 53201-1881
United States

Shawn Rohlin

University of Akron ( email )

259 S. Broadway
Akron, OH 44325
United States

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