ABSTRACT
State governments began creating enterprise zones three decades ago to try to attract or start up businesses to grow local economies, increase employment, and increase tax revenues. Zones operate using an elaborate array of incentives, usually through subsidies, grants, regulatory relief, or technical assistance. Economic theory undergirding zones suggests that market failures—lack of business development in geographical areas, especially distressed ones—can be reversed through incentives. More than 3000 zones, representing more than $1 billion annually, have been launched. Popular with all factions along the political spectrum, zones continue to be a common economic development tool for states and localities. Research on the impact of zones in furthering economic development has been mixed, finding both positive and negative results. The preponderance of studies though show little or negative impact. But results are suspect because they tend to be methodologically flawed and lack suitable data for analysis. Most studies point out that the major reasons for poor impacts include inadequate administration, dysfunctional political interference and politics, and ignorance about sound zone policies and economic reasoning.
