The Simple Economics of “Promise Zones”

In this recent speech, President Obama announced that he will soon implement incentives for promoting “Promise Zones”. These are intended to improve quality of life in distressed communities.

“Here he offered new details about an initiative to select 20 communities nationwide as laboratories for better coordinated federal, local, nonprofit and private-sector investments to revitalize long-distressed areas. The communities would be selected over the next several years, administration officials said, from urban and rural applicants that show persistent woes like high joblessness and crime rates, low rates of high school graduation and college attendance and health concerns among residents.  For these so-called Promise Zones, Mr. Obama is seeking tax breaks for those who make capital investments in the zones and for employers who hire unemployed residents.”

Below the fold, I discuss the economic incidence (i.e the intended and unintended consequences) of these place based subsidies.

Continue Reading…