In the land of OZ: designating opportunity zones
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In the land of OZ: designating opportunity zones James Alm1 · Trey Dronyk‑Trosper1 · Sean Larkin1 Received: 20 January 2020 / Accepted: 14 September 2020 © Springer Science+Business Media, LLC, part of Springer Nature 2020
Abstract The Tax Cuts and Jobs Act of 2017 allowed governors of the fifty states to designate lowincome areas as a “Qualified Opportunity Zone” (QOZ), which entitled the investors in these QOZs to significant tax incentives. As a result, each governor’s designation of QOZs provided an opportunity for the governor to introduce investments in low-income communities that would, in principle, increase economic opportunities in these areas. At the same time, each governor’s decision also provided an opportunity for the governor to reward political allies, to buy voter support, and to help business interests. Which of these many factors influenced the designation of QOZs? In this paper we estimate the impact of economic and political variables on the governors’ decisions to choose which areas among all eligible areas would receive QOZ status and which would not. We find that the QOZ selection process overall seems to have been relatively technocratic, with many of the strongest factors that determine QOZ designation being indicators of economic distress such as higher rates of unemployment, welfare receipt, or lower median income, all of which are consistent with the presumed goals of QOZs. Even so, we also find that political factors are significant in QOZ designation, with Democratic representation being negatively associated with QOZ nomination and with political representation by a local politician of the same party as the governor being positively associated with QOZ nomination. Of some note, we also find that areas with higher college attainment are favored. Keywords Opportunity zones · Tax incentives · Place-based development policies JEL classification H24 · I38 · O23 · R38
* James Alm [email protected] Trey Dronyk‑Trosper [email protected] Sean Larkin [email protected] 1
Department of Economics, Tulane University, Tilton Hall, New Orleans, LA 70118, USA
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Vol.:(0123456789)
Public Choice
1 Introduction An important if somewhat overlooked feature of the Tax Cuts and Jobs Act (TCJA) of 2017 was the creation of the “Opportunity Zone” (OZ) program. An OZ is a designated low-income area within a state, selected by the governor of the state from census tracts in the state that meet specified eligibility requirements, with investments in an OZ then eligible for a range of generous tax incentives. At the time the TCJA was signed into law on 22 December 2017, the national unemployment rate was 4.1 percent, and the overall poverty rate was 12.3 percent. However, these national rates mask enormous heterogeneity across census tracts. The presumed intention of the OZ incentives was to encourage investment in these low-income areas in order to improve incomes, jobs, and economic development in areas that were seen as lagging behind in opportunities, especially opportunities for minority groups
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