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

55 Pages Posted: 4 Aug 2020 Last revised: 30 Aug 2022

See all articles by Alina Arefeva

Alina Arefeva

UW Madison - Wisconsin School Business

Morris A. Davis

Rutgers Business School

Andra C. Ghent

University of Utah - David Eccles School of Business

Minseon Park

University of Wisconsin - Madison - Univeristy of Wisconsin-Madison

Date Written: December 13, 2021

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

Suggested Citation

Arefeva, Alina and Davis, Morris A. and Ghent, Andra C. and Park, Minseon, The Effect of Capital Gains Taxes on Business Creation and Employment: The Case of Opportunity Zones (December 13, 2021). Available at SSRN: https://ssrn.com/abstract=3645507 or http://dx.doi.org/10.2139/ssrn.3645507

Alina Arefeva

UW Madison - Wisconsin School Business ( email )

975 University Avenue
Madison, WI 53706
United States

HOME PAGE: http://www.aarefeva.com

Morris A. Davis

Rutgers Business School ( email )

Rutgers Business School
One Washington Park #1092
Newark, NJ 07102
United States

Andra C. Ghent (Contact Author)

University of Utah - David Eccles School of Business ( email )

1645 E Campus Center Dr
Salt Lake City, UT 84112-9303
United States

Minseon Park

University of Wisconsin - Madison - Univeristy of Wisconsin-Madison ( email )

1300 Linden Dr
Madison, WI 53706
United States

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