What Do We Know about Enterprise Zones?

Abstract

In the last decade, most states have targeted certain depressed areas for revitalization by providing a combination of labor and capital tax incentives to firms operating in an "enterprise zone" (EZ). Britain is also completing a federal program that designated zones for a ten-year period. These zone experiments can add to our understanding of the influence of tax policy on business investment, and provide insights into the design and implementation of federal programs with similar objectives. This paper summarizes the theory and empirical evidence on the operational success of these EZ programs. The experience and appraisal of EZs are the subject of this paper. The next section outlines a conceptual framework for analyzing the effects of an EZ program inside and outside zone boundaries. I present estimates of the percentage change in zone wages under several incentive scenarios. In section II, I discuss some methodological issues involved in measuring the success of an EZ program. The British EZ experiment is described in section III, and section IV surveys the state EZ programs in the United States. Section V focuses on the EZ program in Indiana. It is one of the oldest state programs and has been evaluated with a variety of types of data. New evidence is presented on the well-being of Indiana zone residents using 1980 and 1990 Census data. I briefly discuss the difficult issue of program cost effectiveness in section VI and conclude in section 7 with observations about a proposed federal program and some unresolved issues.