But decades of experience with these policies raise a persistent question. Do they actually create new economic opportunity, or do they mostly move investment from one place to another?
That question now applies not only to local tools like TIF but also to a major federal initiative: Opportunity Zones.
Opportunity Zones were created in the 2017 Tax Cuts and Jobs Act to encourage investment in distressed communities. The program allows investors to defer or eliminate capital gains taxes if those gains are reinvested in designated census tracts. In total, more than 8,700 tracts across the country were selected for the program.
The logic resembles many local development incentives. Reduce the cost of investment in a specific place and development should follow.
A new working paper from economists Matthew Freedman, Noah Arman Kouchekinia and David Neumark takes one of the most comprehensive looks yet at whether the policy achieved that goal. Their study analyzes employment patterns from 2013 through 2023 using detailed administrative employment data and American Community Survey data.
The results are revealing—and familiar to anyone who has studied place-based incentives.
The authors find that Opportunity Zone designation does increase job creation among businesses located inside the zones. But the magnitude is modest: workplace employment rises by roughly 1.4 percent relative to similar low-income areas that were not designated.
More important is where those jobs come from.
A large share of the employment gains within Opportunity Zones appears to be offset by job losses in nearby communities. The researchers estimate that roughly 84 percent of the jobs added inside zones are displaced from adjacent low-income tracts.
In other words, much of the observed job growth represents a relocation of economic activity rather than the creation of new employment within the broader region.
The distribution of those jobs also matters. Most of the new positions created in Opportunity Zones are filled by workers who live outside the zones themselves, including many from more affluent neighborhoods. In fact, fewer than one in eight newly created jobs goes to residents of Opportunity Zones or other low-income communities.
This pattern highlights a structural challenge common to place-based development policies. Firms respond to incentives by locating in subsidized areas, but workers are not bound by those geographic boundaries. Employment opportunities created in targeted neighborhoods often benefit commuters rather than the residents those policies are intended to help.
The researchers also find limited evidence that the program improved the economic circumstances of existing residents. Employment among residents rises slightly over time, but much of that increase reflects jobs located outside the zones. Median earnings show little improvement, and poverty rates do not meaningfully decline.
Some of the measured employment growth may instead reflect changes in who lives in these neighborhoods. The study finds evidence of demographic shifts within Opportunity Zones, including an increase in the share of residents with college degrees and changes in racial composition, suggesting that some of the gains may be tied to new residents moving into the area rather than improvements for existing ones.
These findings echo a long body of research on place-based development incentives.
Programs such as enterprise zones, empowerment zones and tax-subsidized development districts have frequently produced modest increases in economic activity within targeted areas. Yet much of that activity reflects shifts in where businesses locate rather than an expansion of overall economic opportunity.
Opportunity Zones appear to follow that pattern. Investment incentives do influence where development occurs, but the broader benefits for residents of distressed neighborhoods remain limited.
The evidence points to a broader lesson about place-based development policy. Targeted tax incentives can influence where investment occurs, but the research increasingly suggests they do little to expand economic opportunity overall.
Businesses respond to subsidies by relocating or reorganizing activity, while workers and residents remain mobile across city and regional boundaries. The result is often a redistribution of development within a metropolitan area rather than meaningful improvement for the communities these policies are meant to help.
None of this means distressed neighborhoods should be ignored. But it does suggest policymakers should be skeptical of strategies built around geographic tax preferences. Durable economic opportunity is far more likely to come from broader policies that improve the conditions for investment and job creation everywhere—not from incentives tied to a map.