We would like to thank Stuart Rosenthal and Geoffrey Turnbull for comments on the original manuscript. Mark Partridge and three anonymous referees provided helpful suggestions that improved the original manuscript substantially.
DO LOCATION-BASED TAX INCENTIVES ATTRACT NEW BUSINESS ESTABLISHMENTS?*
Article first published online: 24 NOV 2010
© 2010, Wiley Periodicals, Inc.
Journal of Regional Science
Volume 51, Issue 3, pages 427–449, August 2011
How to Cite
Hanson, A. and Rohlin, S. (2011), DO LOCATION-BASED TAX INCENTIVES ATTRACT NEW BUSINESS ESTABLISHMENTS?. Journal of Regional Science, 51: 427–449. doi: 10.1111/j.1467-9787.2010.00704.x
- Issue published online: 26 JUL 2011
- Article first published online: 24 NOV 2010
- Received: February 2009; revised: November 2009, February 2010, March 2010; accepted: April 2010.
ABSTRACT This paper examines how offering tax incentives in a local area affects the entry of new business establishments. We use the federal Empowerment Zone (EZ) program as a natural experiment to test this relationship. Using instrumental variables estimation, we find that the EZ wage tax credit is responsible for attracting about 2.2 new establishments per 1,000 existing establishments, or a total of 20 new establishments in EZ areas. New establishment growth is strongest in the retail (about 40 new establishments) and service (about five new establishments) sectors, and offset by declines or slower growth in other industries.