Do local tax incentives affect economic growth? What mean impacts miss in the analysis of enterprise zone policies

This paper exploits the exogenous variation of U.S. state enterprise zone policies to estimate the impact of geographically-targeted tax incentives on a number of dimensions of local economic growth. The econometric analysis uses establishment-level data to sort out growth outcomes into gross flows separately accounted for by new, existing, and vanishing establishments in the target areas. Results offer empirical evidence with strong external validity to support specific policy recommendations and show that the impacts of the incentives have more complex dynamics than those revealed by the null mean impact estimates obtained from analyzing net growth outcomes. (c) 2006 Elsevier B.V. All rights reserved.