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Enterprise Zones and Individual Welfare: A Case Study of California

Raphael W. Bostic, Allen C. Prohofsky
A now popular economic development tool for states, enterprise zone programs attempt to increase business investment, employment, and wages in depressed areas by offering labor and capital subsidies to firms operating in the designated zones. While a number of studies have examined the effects of EZs on business activity, few have explored how these zones have influenced individuals. This research examines the benefits to individual workers hired under California’s EZ program using information from tax returns to document changes in the economic status of workers directly affected by the designation of enterprise zones in their local areas. The analysis reveals that EZ program participation has a positive impact on both wages and adjusted gross income (AGI) of EZ participants. It is not possible, however, to determine from our data if the income boost from EZ participation is permanent or transitory in nature. The data suggest that EZ participation may benefit taxpayers with very low initial income more than those with somewhat higher initial income. We also find that participation in the EZ program increases the likelihood that an individual will file a tax return. Since this is a case study, we caution that additional analysis is needed to fully determine the extent to which these results can be generalized.