The Effect of Capital Gains Taxes on Business Creation and Employment: The Case of Opportunity Zones

Abstract

The Tax Cuts and Jobs Act of 2017 established a new program called Opportunity Zones (OZs) that reduces or eliminates capital gains taxes on investments in businesses or real estate in a limited number of low-income Census tracts. We use a census of establishment-level data on employment to identify the effect of lower capital gains taxes on business and job creation. We show that in metropolitan areas, the OZ designation increased employment growth relative to comparable tracts by between 3.0 and 4.5 percentage points. The job growth occurred in multiple industries and skill levels.

Keywords: Capital Gains Taxation, Local Employment, Opportunity Zones.

JEL Classification: D22, E24, G11, G38, H73, R30, R38