Tuesday, October 25, 2005

Carrots Without the Sticks

Buried in the back pages of today's LA Times is a gem of an article highlighting the questionable empirical evidence for economic enterprise zones, which have lately been touted by W. as a response to the aftermath of Katrina.

Call me an old-line positivist, but for something to have effectively changed, beyond normal variation, the data must support the evidence. Take a read:

Over the last 10 years, the federal government has chartered 40 empowerment zones and 40 renewal communities, both of which offer tax breaks to qualifying businesses. One is in Los Angeles. Another covers a portion of New Orleans.

In addition to the federal areas, many states and cities have their own enterprise zone programs.

Over the years, economists have attempted to measure the effectiveness of the zones. Some studies have found statistical evidence of higher rates of economic growth and job creation. Others have not. Several analysts who reviewed past research have told Congress the overall results are inconclusive.

When asked for empirical evidence that enterprise zones work, the White House and the Treasury Department cited a 2001 study by the Department of Housing and Urban Development, which oversees the federal programs.

HUD looked at the first six urban zones established during the Clinton administration. They were in Atlanta, Baltimore, Chicago, Detroit, New York and Philadelphia.

Of the six, four experienced greater job growth than comparable areas where the special benefits were not available, the HUD study said, and owners reported that the climate for doing business had improved.

But two zones fared worse than comparable areas, and 65% of businesses in the six areas reported no benefit from being in empowerment zones. In addition, few firms took advantage of the tax credits, and more than half of those that used them said they were of little or no importance in hiring or investing decisions.

HUD said it was unable to reach conclusions about the effectiveness of the zones.

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