Skip to main content
Top
Published in: Empirical Economics 3/2017

12-01-2017

Targeted business incentives and the debt behavior of households

Authors: Wenhua Di, Daniel L. Millimet

Published in: Empirical Economics | Issue 3/2017

Log in

Activate our intelligent search to find suitable subject content or patents.

search-config
loading …

Abstract

The empirical effects of place-based tax incentive schemes designed to aid low-income communities are unclear. While a growing number of studies find beneficial effects on employment, there is little investigation into other behaviors of households affected by such programs. We analyze the impact of the Texas Enterprise Zone Program on household debt and delinquency. Specifically, we utilize detailed information on all household liabilities, delinquencies, and credit scores from the Federal Reserve Bank of New York Consumer Credit Panel/Equifax, a quarterly longitudinal 5% random sample of all individuals in the USA with a social security number and a credit report. We identify the causal effect of the program by using a sharp regression discontinuity approach that exploits the known institutional rules of the program. We find a modest positive impact on the repayment of retail loans, but also evidence of an increase in the delinquency rates of auto loans and in Chapter 13 bankruptcy filings.

Dont have a licence yet? Then find out more about our products and how to get one now:

Springer Professional "Wirtschaft"

Online-Abonnement

Mit Springer Professional "Wirtschaft" erhalten Sie Zugriff auf:

  • über 67.000 Bücher
  • über 340 Zeitschriften

aus folgenden Fachgebieten:

  • Bauwesen + Immobilien
  • Business IT + Informatik
  • Finance + Banking
  • Management + Führung
  • Marketing + Vertrieb
  • Versicherung + Risiko




Jetzt Wissensvorsprung sichern!

Springer Professional "Wirtschaft+Technik"

Online-Abonnement

Mit Springer Professional "Wirtschaft+Technik" erhalten Sie Zugriff auf:

  • über 102.000 Bücher
  • über 537 Zeitschriften

aus folgenden Fachgebieten:

  • Automobil + Motoren
  • Bauwesen + Immobilien
  • Business IT + Informatik
  • Elektrotechnik + Elektronik
  • Energie + Nachhaltigkeit
  • Finance + Banking
  • Management + Führung
  • Marketing + Vertrieb
  • Maschinenbau + Werkstoffe
  • Versicherung + Risiko

Jetzt Wissensvorsprung sichern!

Footnotes
1
See Unemployment Rates for Metropolitan Areas, Bureau of Labor Statistics, http://​www.​bls.​gov/​web/​metro/​laummtrk.​htm.
 
2
See Labor Force Statistics for Texas Counties , Texas Workforce Commission, http://​www.​txcip.​org/​tac/​census/​morecountyinfo.​php?​MORE=​1042.
 
3
Kline and Moretti (2014) note that examples go back much further in time as the tax system was used to redistribute resources from the remainder of the Empire to citizens of Rome.
 
6
Texas contained two Empowerment Zones (San Antonio and El Paso) and two Renewal Communities (Corpus Christi and El Paso).
 
8
See https://​texaswideopenfor​business.​com/​services/​tax-incentives. The program charges a fee of 3% of the amount of refund.
 
10
Estimation is performed using OLS weighted by the size of the Equifax sample in each census block group in the initial period.
 
11
A similar strategy of excluding locations covered by multiple programs is pursued in Ham et al. (2011) and Freedman (2013). Comparison of the excluded block groups with the EZs included in the sample reveals little difference in standardized means between the two groups in terms of attributes. Full summary statistics are available upon request.
 
12
The value of the test statistic (standard error) is −0.08 (0.05) when using the full sample and −0.08 (0.19) when restricting the sample to block groups with a poverty rate between 18 and 22%.
 
13
A similar strategy is pursued in Kolko and Neumark (2010), Freedman (2012, 2013), and Gobillon et al. (2012).
 
15
A similar strategy is pursued in Ham et al. (2011), Givord et al. (2013), and Hanson and Rohlin (2013).
 
17
Lee and van der Klaauw (2010) provide an extensive overview of the data.
 
18
While the appeal of the RD design is that potentially confounding macroeconomic factors that equally affect all block groups near the cutoff are removed, we nonetheless utilize the two terminal dates to explore differential effects of the treatment over the business cycle.
 
19
Auto loans include “loans taken out to purchase a car, including Auto Bank loans provided by banking institutions (banks, credit unions, savings and loan associations), and Auto Finance loans, provided by automobile dealers and automobile financing companies.” Bank cards (or credit cards) are “revolving accounts for banks, bankcard companies, national credit card companies, credit unions and savings & loan associations.” Retail loans include loans from specific retail outlets such as clothing stores, grocery stores, department stores, home furnishing stores, gas stations. See https://​www.​newyorkfed.​org/​medialibrary/​interactives/​householdcredit/​data/​pdf/​data_​dictionary_​HHDC.​pdf.
 
20
The mean (median) number of individual credit reports observed per census block group is roughly 57 (45). We explore the impact of discarding block groups with 10 and 28 individual credit reports and below, which correspond to the 10th and 25th percentiles of the distribution of number of credit reports in either the beginning or the end of the study period. Moreover, it should be made explicit that aggregate block level outcomes are based on all credit reports available at a given point in time. Thus, changes in outcomes over time reflect, in part, changes in sample composition within a block group. Of the sample of credit reports observed in Texas in 2002:Q4, 40.4% are observed in the same block group in 2009:Q4, 25.4% are observed in a different block group but with the same EZ or non-EZ status, 7.8% are observed in a different block group with a different EZ status, and 26.3% exit the sample (due to death or moving outside of Texas).
 
21
Note the sample sizes are smaller for the three delinquency outcomes as the percentage of delinquent accounts or balance for a certain type of loan is computed only using individuals with that type of account. As a result, some block groups do not have any individuals in the sample in certain years with a particular type of account.
 
22
Note retail loans account for a small fraction of consumer debt. In Texas in 2014:Q4, per capita total debt was nearly $40,000. Of this, consumer finance loans (including sales financing and personal loans) and retail loans make up about 5% (Federal Reserve Bank of New York 2015).
 
24
In addition, we performed the placebo tests for all cutoffs from 0.10, 0.11, ..., 0.17, 0.175, 0.225, 0.23, ..., 0.30. The results are available upon request. However, Figure A3 in the Supplemental Appendix plots the results for one outcome, median risk score, for illustration.
 
Literature
go back to reference Accetturo A, de Blasio G (2012) Policies for local development: an evaluation of italy’s ‘patti territoriali’. Reg Sci Urban Econ 42:15–26CrossRef Accetturo A, de Blasio G (2012) Policies for local development: an evaluation of italy’s ‘patti territoriali’. Reg Sci Urban Econ 42:15–26CrossRef
go back to reference Bondonio D, Engberg J (2000) Enterprise zones and local employment: evidence from the states’ programs. Reg Sci Urban Econ 30:519–549CrossRef Bondonio D, Engberg J (2000) Enterprise zones and local employment: evidence from the states’ programs. Reg Sci Urban Econ 30:519–549CrossRef
go back to reference Bondonio D, Greenbaum RT (2007) Do local tax incentives affect economic growth? What mean impacts miss in the analysis of enterprise zones policies. Reg Sci Urban Econ 37:121–136CrossRef Bondonio D, Greenbaum RT (2007) Do local tax incentives affect economic growth? What mean impacts miss in the analysis of enterprise zones policies. Reg Sci Urban Econ 37:121–136CrossRef
go back to reference Briant A, Lafourcade M, Schmutz B (2015) Can tax breaks beat geography? Lessons from the french enterprise zone experience. Am Econ J Econ Policy 7:88–124CrossRef Briant A, Lafourcade M, Schmutz B (2015) Can tax breaks beat geography? Lessons from the french enterprise zone experience. Am Econ J Econ Policy 7:88–124CrossRef
go back to reference Bronzini R, Iachini E (2014) Are incentives for r&d effective? Evidence from a regression discontinuity approach. Am Econ J Econ Policy 6:100–134CrossRef Bronzini R, Iachini E (2014) Are incentives for r&d effective? Evidence from a regression discontinuity approach. Am Econ J Econ Policy 6:100–134CrossRef
go back to reference Busso M, Gregory J, Kline P (2013) Assessing the incidence and efficiency of a prominent place based policy. Am Econ Rev 103:897–947CrossRef Busso M, Gregory J, Kline P (2013) Assessing the incidence and efficiency of a prominent place based policy. Am Econ Rev 103:897–947CrossRef
go back to reference Engberg J, Greenbaum R (1999) State enterprise zones and local housing markets. J Hous Res 10:163–187 Engberg J, Greenbaum R (1999) State enterprise zones and local housing markets. J Hous Res 10:163–187
go back to reference Freedman M (2012) Teaching new markets old tricks: the effects of subsidized investment on low-income neighborhoods. J Public Econ 96:1000–1014CrossRef Freedman M (2012) Teaching new markets old tricks: the effects of subsidized investment on low-income neighborhoods. J Public Econ 96:1000–1014CrossRef
go back to reference Freedman M (2013) Targeted business incentives and local labor markets. J Hum Resour 48:311–344 Freedman M (2013) Targeted business incentives and local labor markets. J Hum Resour 48:311–344
go back to reference Givord P, Rathelot R, Sillard P (2013) Place-based tax exemptions and displacement effects: an evaluation of the zones franches urbaines program. Reg Sci Urban Econ 43:151–163CrossRef Givord P, Rathelot R, Sillard P (2013) Place-based tax exemptions and displacement effects: an evaluation of the zones franches urbaines program. Reg Sci Urban Econ 43:151–163CrossRef
go back to reference Glaeser E, Gottlieb J (2008) The economics of place-making policies. Brookings Pap Econ Act 39:155–253CrossRef Glaeser E, Gottlieb J (2008) The economics of place-making policies. Brookings Pap Econ Act 39:155–253CrossRef
go back to reference Gobillon L, Magnac T, Selod H (2012) Do unemployed workers benefit from enterprise zones? The french experience. J Public Econ 96:881–892CrossRef Gobillon L, Magnac T, Selod H (2012) Do unemployed workers benefit from enterprise zones? The french experience. J Public Econ 96:881–892CrossRef
go back to reference Ham J, Swenson C, İmrohoroğlu A, Song H (2011) Government programs can improve local labor markets: evidence from state enterprise zones, federal empowerment zones, and federal enterprise community. J Public Econ 95:779–797CrossRef Ham J, Swenson C, İmrohoroğlu A, Song H (2011) Government programs can improve local labor markets: evidence from state enterprise zones, federal empowerment zones, and federal enterprise community. J Public Econ 95:779–797CrossRef
go back to reference Hanson A (2009) Local employment, poverty, and property value effects of geographically-targeted tax incentives: an instrumental variables approach. Reg Sci Urban Econ 39:721–731CrossRef Hanson A (2009) Local employment, poverty, and property value effects of geographically-targeted tax incentives: an instrumental variables approach. Reg Sci Urban Econ 39:721–731CrossRef
go back to reference Hanson A, Rohlin S (2013) Do spatially targeted redevelopment programs spillover? Reg Sci Urban Econ 43:86–100CrossRef Hanson A, Rohlin S (2013) Do spatially targeted redevelopment programs spillover? Reg Sci Urban Econ 43:86–100CrossRef
go back to reference Hellerstein JK, Neumark D (2012) Employment problems in black urban labor markets: problems and solutions. In: Jefferson PN (ed) The Oxford handbook of the economics of poverty. Oxford University Press, Oxford, pp 164–202 Hellerstein JK, Neumark D (2012) Employment problems in black urban labor markets: problems and solutions. In: Jefferson PN (ed) The Oxford handbook of the economics of poverty. Oxford University Press, Oxford, pp 164–202
go back to reference Kline P, Moretti E (2013) Place based policies with unemployment. Am Econ Rev 103:238–243CrossRef Kline P, Moretti E (2013) Place based policies with unemployment. Am Econ Rev 103:238–243CrossRef
go back to reference Kline P, Moretti E (2014) People, places and public policy: some simple welfare economics of local economic development programs. Ann Rev Econ 6:629–662CrossRef Kline P, Moretti E (2014) People, places and public policy: some simple welfare economics of local economic development programs. Ann Rev Econ 6:629–662CrossRef
go back to reference Kolko J, Neumark D (2010) Do some enterprise zones create jobs? J Policy Anal Manag 29:5–38CrossRef Kolko J, Neumark D (2010) Do some enterprise zones create jobs? J Policy Anal Manag 29:5–38CrossRef
go back to reference Krupka DJ, Noonan DS (2009) Empowerment zones, neighborhood change and owner-occupied housing. Reg Sci Urban Econ 39:386–396CrossRef Krupka DJ, Noonan DS (2009) Empowerment zones, neighborhood change and owner-occupied housing. Reg Sci Urban Econ 39:386–396CrossRef
go back to reference Ladd HF (1994) Spatially targeted economic development strategies: Do they work? Cityscape J Policy Dev Res 1:193–218 Ladd HF (1994) Spatially targeted economic development strategies: Do they work? Cityscape J Policy Dev Res 1:193–218
go back to reference Lee D, Lemieux T (2010) Regression discontinuity designs in economics. J Econ Lit 48:281–355CrossRef Lee D, Lemieux T (2010) Regression discontinuity designs in economics. J Econ Lit 48:281–355CrossRef
go back to reference Livshits I (2015) Recent developments in consumer credit and default literature. J Econ Surv 29:594–613CrossRef Livshits I (2015) Recent developments in consumer credit and default literature. J Econ Surv 29:594–613CrossRef
go back to reference Mayer T, Mayneris F, Py L (2015) The impact of urban enterprise zones on establishment location decisions and labor market outcomes: evidence from France. J Econ Geogr (forthcoming) Mayer T, Mayneris F, Py L (2015) The impact of urban enterprise zones on establishment location decisions and labor market outcomes: evidence from France. J Econ Geogr (forthcoming)
go back to reference McCrary J (2008) Manipulation of the running variable in the regression discontinuity design: a density test. J Econom 142:698–714CrossRef McCrary J (2008) Manipulation of the running variable in the regression discontinuity design: a density test. J Econom 142:698–714CrossRef
go back to reference Moretti E (2011) Local labor markets. In: Ashenfelter O, Card D (eds) Handbook of labor economics, vol 4B. North-Holland, Amsterdam, pp 1237–1313 Moretti E (2011) Local labor markets. In: Ashenfelter O, Card D (eds) Handbook of labor economics, vol 4B. North-Holland, Amsterdam, pp 1237–1313
go back to reference Neumark D, Simpson H (2015) Place-based policies. In: Duranton G, Henderson V, Strange W (eds) Handbook of regional and urban economics, vol 5. Elsevier, Amsterdam, pp 1197–1287 Neumark D, Simpson H (2015) Place-based policies. In: Duranton G, Henderson V, Strange W (eds) Handbook of regional and urban economics, vol 5. Elsevier, Amsterdam, pp 1197–1287
go back to reference Reynolds CL, Rohlin SM (2015) The effects of location-based tax policies on the distribution of household income: evidence from the federal empowerment zone program. J Urban Econ 88:1–15CrossRef Reynolds CL, Rohlin SM (2015) The effects of location-based tax policies on the distribution of household income: evidence from the federal empowerment zone program. J Urban Econ 88:1–15CrossRef
go back to reference Rogers CL, Tao JL (2004) Quasi-experimental analysis of targeted economic development programs: lessons from Florida. Econ Dev Q 18:1–17CrossRef Rogers CL, Tao JL (2004) Quasi-experimental analysis of targeted economic development programs: lessons from Florida. Econ Dev Q 18:1–17CrossRef
Metadata
Title
Targeted business incentives and the debt behavior of households
Authors
Wenhua Di
Daniel L. Millimet
Publication date
12-01-2017
Publisher
Springer Berlin Heidelberg
Published in
Empirical Economics / Issue 3/2017
Print ISSN: 0377-7332
Electronic ISSN: 1435-8921
DOI
https://doi.org/10.1007/s00181-016-1188-z

Other articles of this Issue 3/2017

Empirical Economics 3/2017 Go to the issue

EditorialNotes

Introduction