Urban Enterprise Zones: Employment Impacts and Fiscal Incentives

Abstract

The urban enterprise zone is an economic development concept that has been implemented by a large majority of state governments in the United States. Yet there is little evidence demonstrating that this concept is effective at generating new ecnomomic development at the local level. Nor does previous research on enterprise zones take into account external effects that may stimulate or deter economic growth within a zone. This article seeks to remedy these problems by carrying out a disaggregated analysis of new job development within an enterprise zone, and by presenting a method that enables external growth stimuli and industrial composition to be factored out of the enterprise zone evaluation process. This method relies on shift-share analysis to reveal the comparative advantage of an enterprise zone for generating economic growth relative to the larger metropolitan area of which it is a geographic component. The method is applied to the Evansville, Indiana, Urban Enterprise Zone. From this analysis we conclude that the enterprise zone concept can be a cost-effective local economic development tool.