Wednesday, October 7, 2020
Michelle Layser (Illinois) presents Magnet Zones virtually at UC-Irvine today as part of its Tax Policy Colloquium Series hosted by Joshua Blank, Victor Fleischer, and Omri Marian:
Many place-based tax incentives “work” by creating new fiscal geographies—places where government actors actively shape urban processes through tax law and other public expenditures. A goal of these incentives is to influence the location of investments in order to improve upon preexisting uneven development patterns in ways that reduce geographic inequality. A recent example is the new and highly controversial Opportunity Zones tax incentive. However, the Opportunity Zones tax incentive has drawn criticism for targeting investment to gentrifying and relatively high-income neighborhoods in addition to low-income areas. If tracts like these serve as magnets to attract a disproportionate share of investment, then those “magnet zones” may undermine program goals.
Specifically, it employs spatial analysis methods to identify social, economic, and legal factors that are predictive of investment locations within fiscal geographies. In doing so, it provides powerful new evidence that magnet zones may form in areas with high vacancy rates, positive income trajectories, and overlapping fiscal geographies. These findings have far reaching implications for the design of tax incentives used to reduce geographic inequality.
Yet, despite a significant body of research about the amount and types of investment that take place within tax favored zones, few studies have analyzed where investments take place within fiscal geographies. If all parts of a fiscal geography are equally likely to attract investment, then the presence of a small number of “problematic” designations may be acceptable. This Article exploits two nationwide datasets about an established place-based tax incentive, the New Markets Tax Credit, to test whether and where magnet zones may develop within fiscal geographies.