Place-based economic development is back near the center of federal policy, from Opportunity Zones to the CHIPS and Science Act. That renewed attention comes with a familiar problem: decades of enterprise zones, tax incentives, infrastructure investments, and other geographically targeted programs have produced results that are hard to summarize cleanly. In a new NBER working paper, Matthew Freedman and David Neumark ask the better question: not simply whether or not these policies work, but under what conditions they might work, for whom, and why. Their review points to a practical conclusion: policy design matters and targeting a distressed community with development-focused financial incentives is rarely enough on its own.
Freedman and Neumark review recent economic theory alongside evidence from a wide range of U.S. place-based policies. They organize the evidence around three basic design decisions: where programs are targeted, what types of incentives or investments they provide, and how those incentives are distributed. That structure makes it easier to compare very different programs and identify features tied to stronger employment outcomes.
According to the authors, programs that use discretion and performance requirements tend to create more jobs than programs in which incentives are automatically available to any qualifying business or investor. By-right incentives can reward companies that would have hired workers or invested anyway. Competitive programs, by contrast, can focus on firms whose decisions are more likely to change because of the incentive, while performance requirements make the benefit depend on promised investments or jobs materializing.
The California Competes Tax Credit provides one example of what the researchers deem to consider effective. The program uses a competitive application process and requires employers to meet employment milestones before they can claim credits. Research on the program found roughly three additional jobs for each incentivized job and no evidence that the gains simply reflected jobs moving into California from other states. The authors caution, however, that discretion creates its own challenges. It requires administrative expertise and safeguards against political influence, and a focus on projects most likely to respond to incentives can steer resources toward stronger communities rather than those experiencing the greatest distress.
A second lesson is that locally tailored strategies encompassing multiple interventions appear more promising than tax incentives alone. Communities may need workforce training, infrastructure, or stronger local institutions before private investment can take root. The authors point to the first round of federal Empowerment Zones, which combined tax incentives with sizable block grants, and Promise Zones, which gave communities preferential access to federal grants and other resources. Both have produced stronger outcomes than comparable approaches relying more narrowly on tax incentives.
Scale matters as well. Small incentives may not be large enough to change business decisions or overcome the coordination problems that prevent new industries from developing. Freedman and Neumark argue that some of the stronger historical examples of place-based development involved public commitments large enough to change expectations about a region's economic future. They point to recent research finding that employment increased in the semiconductor industry after the Senate passed a precursor to the CHIPS and Science Act but before federal funding was distributed, suggesting that the credible expectation of substantial federal investment itself may have begun changing private-sector behavior.
Job creation within a targeted area does not necessarily mean that the people living there or nearby receive the benefits. Research on several programs has found that new jobs may go to commuters or new residents, while increased investment can raise property values and shift some of the benefits to landowners. Opportunity Zones illustrate the problem. Although recent research has found increases in workplace employment in designated tracts, the longer-term employment gains for residents appear to have benefited higher-income people moving into the zones rather than incumbent low-income residents. Other place-based programs raise similar questions. Studies of the New Markets Tax Credit have found that commuters from outside targeted neighborhoods may fill new jobs and that some improvements in neighborhood economic indicators reflect changes in who lives there. Recent research on Promise Zones likewise finds that some measured gains were associated with changes in residential composition.
This distinction is important because the authors argue that policymakers often treat two different goals as if they were the same. One goal is economic efficiency: correcting a market failure that prevents an otherwise promising region from reaching its potential. The other is equity: improving economic opportunities for people living in distressed communities. Those goals may require different places, tools, and measures of success. A high-poverty location is not automatically a place where a business subsidy can fix identifiable market failures. Conversely, a place with the strongest response to an economic development intervention may not be the place with the greatest need.
For economic development practitioners, the paper's broader message is that effective place-based policy must do more than draw a boundary on a map and attach an incentive to it. Programs should begin with a clear understanding of the problem they are trying to solve, match investments to that problem, operate on a scale capable of changing behavior, and track who ultimately benefits.