The Impact of Opportunity Zones on Commercial Investment and Economic Activity

A provision of the Tax Cuts and Jobs Act of 2017 offered tax incentives for investing in certain low income areas in the United States called Opportunity Zones (OZs). The goal of this provision was to spur private investment in OZs in order to improve the economic well-being of their residents. This paper uses a regression discontinuity design to evaluate the impact of OZs on commercial investment and economic activity, outcomes that are precursors to downstream effects on the well-being of OZ residents. Unlike difference in differences designs used by the existing literature to evaluate OZs, our regression discontinuity approach does not require unverifiable assumptions that OZs and non-OZs were affected similarly by unobserved factors post-implementation. Using data on the universe of all significant commercial investments in the United States, we find that OZ designation led to little or no increase in the total amount of investment or the number of investments in OZs. These findings are supported by additional data from Mastercard that also show no evidence of increased business activity nor consumer spending. Overall, our findings suggest that the impact of OZs on economic improvement has thus far been limited.
(Naomi Feldman and Kevin Corinth)