TAX COSTS AND EMPLOYMENT BENEFITS OF ENTERPRISE ZONES

This article answers a challenge raised against traditional economic d evelopment policy; recent research has shown that such policies, far f rom being zero sum, have positive-sum effects. The article examines th ese questions: Are the local benefits of tax incentives greater than t he costs? Specifically are benefits greatest in high-unemployment area s because of low reservation wages ? If so, do such policies produce n et benefits for a region even if they redistribute jobs? To answer the se questions, reservation wages are estimated as a function of unemplo yment. Net benefits and costs from new and relocated jobs are compared The results indicate that overall local benefits are greater than, th e local costs of providing tax incentives. However untargeted provisio n of incentives is not recommended even in, high-unemployment areas. T he article provides an alternative approach toward traditional policie s and demonstrates that such policies do produce net benefits for the locality adopting them.