Place-based tax exemptions and displacement effects: An evaluation of the Zones Franches Urbaines program

In this study, we evaluate the impact of the French Zones Franches Urbaines on economic activity. This public-funded place-based program, comparable to US enterprise zones, exempts businesses from taxes for a period of at least five years. For the purpose of this evaluation, we merged several administrative datasets at the company level. This allows us to exhaustively observe business creations and stocks, as well as employment and financial outcomes for companies at specific geographical locations. We focus on the second round of the program, during which treated territories were selected among a pool of deprived areas according to a known set of covariates. The way treatment was assigned makes the conditional independence assumption credible in our case. Overall, we find significant effects on both business creation and employment while the impact on companies that were located in the treated areas before the program is not significant, regardless of the outcome. We also provide evidence of significant negative spillovers of the program on neighboring areas.

► We evaluate the impact of a French placed-based tax-cut program on economic activity. ► In our data, business creations and stocks are exhaustively and precisely observed. ► We find positive effects of the program on business creation and employment. ► No impact on firms that were located in treated zones before treatment was enforced. ► We also find strong negative spillovers on areas which are neighboring treated ones.