Competition Among American States: Evidence from Illinois Enterprise Zones

Abstract

Until recently, supply-side regional development policy, consisting of financial and tax incentives, credits, and abatements, was believed to be ineffective. First, such policy was thought to have no effect on firms’ location decisions; secondly, it was argued that such policies were zero-sum games that redistributed jobs between places, while leaving the total number of jobs within the economy unchanged. The previous chapter developed an analytical model to study the impact of policies such as EZs not only on the economy of the region in which it is situated, but also on the rest of the economy. In this chapter, we examine empirically whether such policies produce net benefits and have favourable equity implications. Using data from the EZs of Illinois in the Midwestern United States, this chapter answers, from a local and state perspective, the challenge raised against the zero-sum nature of supply-side regional development policy. Illinois is selected because it is one of the most important states in the Midwestern United States. Furthermore, Illinois was one of the first states in the United States to adopt the enterprise zone legislation once the EZ concept had been imported from the United Kingdom in the 1980s.