Opportunity Zones: A Program in Search of a Purpose

Abstract

In 2017, Congress created the Opportunity Zone (“OZ”) program to stimulate economic growth in low-income communities. The program was characterized by its unprecedented scale relative to previous place-based development efforts and was described as “perhaps the most ambitious economic development tool to come out of Congress in a generation.” However, the program was quickly criticized on numerous grounds, and its design flaws are so severe that several legislators have called for its reform or repeal. This Essay argues that the root of the OZ program’s problems is a strong mismatch between its stated purpose and its actual terms. We discuss how the OZ program works and why the actual terms of its enabling legislation encourage investors to focus on real estate projects. We show that, contrary to common perceptions of the OZ program, its intended purpose was to promote entrepreneurship and startup activity. We conduct an empirical analysis to show that low-income tracts did not experience any increase in startup investment following OZ designation. Overall, our results suggest that OZ designation has generally failed to achieve its stated goal and that the serious concerns about its manipulability to favor specific investors are warranted. Finally, we consider various proposals to make the OZ program more consistent with its original goal and briefly note how the legislative process behind the OZ statute may have contributed to its shortcomings.

Keywords: Opportunity Zones, Subsidy Programs, Entrepreneurship, Investment, Development

JEL Classification: O38,H1,H2,K34