Do Opportunity Zones Create Opportunities?
Paper Session
Sunday, Jan. 3, 2021 3:45 PM - 5:45 PM (EST)
- Chair: Daniel Hartley, Federal Reserve Bank of Chicago
What Determines Where Opportunity Knocks? Political Affiliation in the Selection of Opportunity Zones
Abstract
We examine the role of political affiliation during the selection of Opportunity Zones, a place-based tax incentive enacted by the Tax Cuts and Jobs Act of 2017. We find governors are on average 8.0% more likely to select a census tract as an Opportunity Zone when the tract’s state representative is a member of the governor’s political party. Further, we find that this effect ranges from 0.0% to 26.0% depending on the state-level processes that governors used to select Opportunity Zones, such as engagement of professional advisors and implementation of public comment procedures. These effects are (i) incremental to important demographic factors that also increased the likelihood of selection, such as lower income levels and improving local conditions and (ii) concentrated in states with less transparent information environments where the public has less ability to monitor government officials. Analysis of initial business investment in these areas (e.g. commercial real estate transactions, new building permits, and construction employment) shows little to no variation based on political affiliation of the tract. Thus, politically-affiliated tracts had a higher probability of being selected to receive tax-advantaged investment but did not produce better early outcomes. These results provide evidence relevant for current Congressional legislative proposals by informing the extent to which state-level politics and processes affected the implementation of this incentive.Where Is the Opportunity in Opportunity Zones? Early Indicators of the Opportunity Zone Program's Impact on Commercial Property Prices
Abstract
In December 2017, the U.S. Congress passed into law the Opportunity Zone (OZ)program. As an opportunity zone, designated low-income census tracts provide considerable tax benefits to investors who are willing to renovate / redevelop their properties in the OZ. Intended to spur economic growth, a success of the OZ program should result in higher property values, even for properties without redevelopments / renovations. In this study, we compare property prices in designated and eligible (but not designated) OZ census tracts in a difference-in-differences framework. We find that OZ designation did not impact properties prices in general but resulted in a 10% – 20% price increase for properties with high redevelopment / renovation requirements and vacant land. These findings suggest that tax benefits are priced in but investor anticipate limited future economic growth of OZ census tracts.Job Growth from Opportunity Zones
Abstract
The Tax Cuts and Jobs Act of 2017 established a new program called Opportunity Zones (OZs) that created tax advantages for investing 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 the program on 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 and new jobs were created across many different industries and education levels. The OZ designation did not create jobs in rural areas.Discussant(s)
Fernando Ferreira
,
University of Pennsylvania
Matthew Freedman
,
University of California-Irvine
Crocker Liu
,
Cornell University
Anthony DeFusco
,
Northwestern University
JEL Classifications
- R3 - Real Estate Markets, Spatial Production Analysis, and Firm Location
- H7 - State and Local Government; Intergovernmental Relations