Do place-based policies achieve their objectives?
By: Helen Simpson
Place-based policies such as enterprise zones target specific geographic areas, rather than specific groups of people. Even so, their ultimate aim is often to create jobs and boost incomes of relatively disadvantaged residents. A new Federal Reserve Bank of San Francisco Economic Letter, by David Neumark and Helen Simpson, discusses the evidence on whether place-based policies meet their objectives. The evidence on enterprise zones is mixed, with some studies finding no effects on employment and others finding positive effects on job creation. There is also no clear cut evidence that enterprise zones reduce poverty, and some evidence that they lead to house price increases, suggesting that the end beneficiaries may well differ from those the policy originally set out to help.
While targeting specific areas to take advantage of “agglomeration benefits” (that is, the productivity boost stemming from increased density of firms and workers), or purely on equity grounds is justifiable, the intended effects of policies that target “place” rather than “people” can be undone by geographic mobility. Firms may simply re-locate into subsidised areas, calling into question the nationwide benefits of an area-based subsidy if jobs are simply being geographically reshuffled, and people may also move. This means that the ultimate beneficiaries of any new jobs may not be the original disadvantaged residents, and that homeowners and landlords may benefit from increased property values. Given this, place-based policies aimed at specific locations should be closely evaluated to fully understand who exactly it is that gains any benefits, and whether these come at a cost to other individuals or areas.