What Determines Where Opportunity Knocks? Political Affiliation in the Selection of Opportunity Zones

Abstract

We examine the role of political affiliation during the selection of Opportunity Zones, a place-based tax incentive enacted by the Tax Cuts and Jobs Act of 2017. We find governors are on average 7.6% more likely to select a census tract as an Opportunity Zone when the tract’s state representative is a member of the governor’s political party. This effect is incremental to local demographic factors that increased the likelihood of selection, such as lower income levels and preceding improvements in local conditions. Selection of politically affiliated tracts is greatest in Republican-governed states, where the effect increases to 13.2%. Furthermore, we find two procedures used by some governors when selecting Opportunity Zones – proportional allocation across a state and delegation of initial nominations to local authorities – offset the role of political affiliation. These results enhance our understanding of the selection of place-based economic incentives, providing evidence relevant for concurrent and future academic literature and legislative proposals.

Keywords: Place-based tax incentives, Opportunity Zones, Tax Cuts and Jobs Act

JEL Classification: H24, H25, H21, O18, O21, R38