Is it possible to actually create jobs by giving tax breaks? A recent study by the Public Policy Institute of California, Do California's Enterprise Zones Create Jobs? http://www.ppic.org/main/publication.asp?i=742 , looks at the impact on employment of the Enterprise Zone program. Enterprise Zones give significant tax breaks to businesses on the theory that businesses will use the cash not paid in taxes to expand the business and more jobs will be created.
But is this happening? Or are taxpayers losing revenue from businesses without getting the benefits?
According to the most recent study, there is little job creation attributable to Enterprise Zones. The Public Policy Institute study did a detailed statistical analysis to see if there are measurable effects on job creation in these zones. There is no statistically significant effect on employment levels or the growth rate of jobs within Enterprise Zones.
The study did find a decline in the number of businesses in the zones while employment remained the same. This decline could be that businesses are becoming larger and the fixed costs of opening a business in an Enterprise Zone are high enough to attract larger, rather than smaller, businesses. The statistics also show that the Enterprise Zones have no effect on employment in low-wage industries or manufacturing.
In this time of economic need, it is disappointing to learn that California's largest economic development program does not create employment. The state spends a lot of money on the program and the administration of the program and loses over $330 million a year in taxes, but receives no significant benefit. In these times, maybe it is time to restructure or eliminate the Enterprise Zone program. Maybe we just can't afford to give money away if the jobs aren't created.
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