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Do Local Economic Development Programs Work? Evidence From the Federal Empowerment Zone Program.

June 2007

Matias Busso, University of Michigan, and Patrick Kline, University of Michigan.

Download 'working_paper07-16.pdf'.


This paper evaluates Round I of the federal urban Empowerment Zone (EZ) program, which constitutes one of the largest standardized federal interventions in impoverished urban American neighborhoods since President Johnson’s Model Cities program. The EZ program is a series of spatially targeted tax incentives and block grants designed to encourage economic, physical, and social investment in the neediest urban and rural areas in the United States. We use four decades of Census data on urban neighborhoods in conjunction with information on the proposed boundaries of rejected EZs to assess the impact of Round I EZ designation on local labor and housing market outcomes over the period 1994-2000.
Utilizing a semi-parametric difference-in-differences estimator we find that neighborhoods receiving EZ designation experienced moderate improvements in labor market conditions and sizeable increases in owner-occupied housing values and rents relative to rejected and future Empowerment Zones. These effects were accompanied by small changes in the demographic composition of the neighborhoods, suggesting that some, though not all, of the observed improvements in EZ neighborhoods are the result of neighborhood churning. No
evidence exists of large scale gentrification, indicating that many of the benefits (and costs) of the program have been captured by pre-existing residents.

Economic Development, Urban Poverty