Opportunity Zone Selection Influenced by Politics, Study Finds

A new study published in the Journal of Public Economics has found that political affiliation plays a role in how governors select Opportunity Zones in their state.

Opportunity Zones are distressed areas where real estate investors can place their capital at a tax advantage, with the aim of spurring economic development. The program was created by the Tax Cuts and Jobs Act of 2017.

The new study is entitled What determines where opportunity knocks? Political affiliation in the selection of Opportunity Zones. It was conducted by Mary Margaret Frank of the University of Virginia’s Darden School of Business; Jeffrey L. Hoopes of the University of North Carolina’s Kenan-Flagler Business School; and Rebecca Lester of Stanford University’s Graduate School of Business.

According to the abstract:

We find governors are on average 7.6% more likely to select a census tract as an Opportunity Zone when the tract’s state representative is a member of the governor’s political party. This effect is incremental to local demographic factors that increased the likelihood of selection, such as lower income levels and preceding improvements in local conditions. Selection of politically affiliated tracts is greatest in Republican-governed states, where the effect increases to 13.2%. Furthermore, we find two procedures used by some governors when selecting Opportunity Zones – proportional allocation across a state and delegation of initial nominations to local authorities – offset the role of political affiliation. These results enhance our understanding of the selection of place-based economic incentives, providing evidence relevant for concurrent and future academic literature and legislative proposals.

You can purchase the PDF here.