When Congress passed and President Trump signed into law the Tax Cuts and Jobs Act at the end of 2017, most attention centered on the reduction in the corporate tax rate and overhaul of the individual tax code. Few noticed a provision added at the last minute establishing a new place-based policy in the United States called Opportunity Zones.

The basic idea for Opportunity Zones was hatched several years earlier by tech entrepreneur Sean Parker (a Napster cofounder and early Facebook stakeholder). He provided startup funds for a small think tank called the Economic Innovation Group to develop the idea into a policy. The think tank in turn enlisted a bipartisan and influential group of academic economists for partnership and oversight. Although Opportunity Zones were introduced on a bipartisan basis as a bill in the US House and Senate in 2016, they flew largely under the radar. Most of the key Congressional and White House players in the debate over what became the Tax Cuts and Jobs Act of 2017 had little awareness of Opportunity Zones when the other provisions of the bill were being drafted and debated. It was only when Senator Tim Scott (R-South Carolina) pushed for their inclusion, along with Congressional leaders and later President Trump, that Opportunity Zones were added to the larger tax bill late in 2017.

Place-based policies are motivated by the desire to address disparities and stimulate economic development in specific geographic areas that suffer from disadvantage and underinvestment, which, at least in theory, could bolster economic growth of the nation as a whole and reduce strain on public benefit programs. The breadth and size of the problems facing distressed areas—the disconnection of nondisabled men from the labor force, a swelling drug epidemic, and persistent stagnation—have disrupted the long-held view among many economists that policies should seek to help people, not places. But while economists increasingly discussed what government could or should do to help left-behind areas and their residents, there was no consensus on what policies would work. A checkered history of place-based policies, suggesting at best mixed evidence on positive outcomes, warranted skepticism of simply expanding existing policies (Bernstein and Hassett 2015).

Opportunity Zones broke from previous place-based tax policies, many of which allocated investment incentives through government-approved entities on the basis of intentionally chosen characteristics.
Instead, Opportunity Zones sought to relax tight government control over the place and form of investment. They offered uncapped tax incentives for individual investors to reinvest unrealized capital gains in a large swath of areas across the country. Whether a more flexible, market-driven approach could improve on the previous track record of place-based tax policies was put to the test. Now, seven years after the inconspicuous beginning of Opportunity Zones, a growing body of evidence has emerged, offering lessons for future place-based policies. Overall, a substantial amount of investment has flowed to the designated areas under the policy; however, aside from potentially important effects on residential real estate, it is unclear whether this represents additional investment that would not otherwise have occurred, and the evidence on benefits to residents of these areas is limited.