A Long-Term Evaluation of the First Generation of the French Urban Enterprises Zones

This paper provides new empirical assessment on the efficiency of locally-targeted tax incentives in revitalizing distressed areas. We focus on the first generation of the French “Enterprise Zone” initiative, implemented in 1997 in continental France.

We use new georeferenced panel data at the firm level over a twelve-year period. The zone designation process suggests two empirical strategies : difference-in-difference regressions with subclassification on the propensity score and regression discontinuity design. Both methods yield similar results. We highlight a strong positive impact of the Entreprise Zone policy on employment and business location during the first years of the policy.

According to our estimates, the French EZ initiative caused the number of firms located in the designated zones to double (compared to the baseline level that would have been achieved without tax rebates). However, this favourable assessment has to be moderated because it seems mostly due to firms that are less prone to stimulate either local employment or economic activities. In addition, after some years, the early positive results are reduced as the increase in business locations is partially offset by more frequent business discontinuations. As far as employment is concerned, we find that jobs were created by the relocation of firms to the designated EZ areas. However, the initiative did not induce firms already operating in these areas to create new jobs.