What Is an Enterprise Zone?

An enterprise zone is a geographic area that has been granted special tax breaks, regulatory exemptions, or other public assistance in order to encourage private economic development and job creation. They are used most often to promote the revitalization of a city neighborhood.

Enterprise zones were introduced in the U.S. in the 1970s in an effort to reverse the flight of people and businesses from city centers to the suburbs. The programs may be used to encourage a private company to stay in a neighborhood, expand in it, or relocate to it.

Key Takeaways

  • Enterprise zones are geographic regions that are granted special status by a government in order to encourage development and economic growth.
  • The zones may be granted favorable tax rates, regulatory exemptions, or other incentives to encourage businesses to stay in the area or locate in it.
  • Enterprise zones are found all over the world, from neighborhoods in U.S. cities to entire cities in China.

Understanding Enterprise Zones

Enterprise zones are often established in neighborhoods that have experienced a decline in essential businesses or quality housing, or both. Other areas that are candidates may be struggling to recover from a natural disaster such as a flood or hurricane.

Reduced taxes, exemptions from regulations, and even matching funding can be used to encourage businesses to build new housing or open new businesses. Small businesses, local jobs, and new residents hopefully follow.

The Central Avenue business district in Jersey City, New Jersey, has been an Urban Enterprise Program since 1983.

The incentives may be customized to entice a particular industry sector or company to the area with the hopes of creating jobs, boosting tax revenues, and increasing economic activity.

The main federal program establishing enterprise zones is a program called Empowerment Zones, Enterprise Communities, and Renewal Communities, enacted in 1994. Most states and many cities have their own programs, often subsidized by the federal program.

Examples of an Enterprise Zone

Jersey City, New Jersey, has one of the nation's longest-lived enterprise zones.

Since 1983, the state's Urban Enterprise Program has offered a sales tax incentive to encourage shoppers to patronize the small businesses that line its Central Avenue business district. Businesses in the zone can charge half the state sales tax rate of 6.625%.

The businesses also can get tax savings for hiring new staff and undertaking capital improvement projects.

China's Special Economic Zone

The concept of economic zones is by no means restricted to the U.S. Mainstream economists agree that China's special economic zone (SEZ) helped liberalize business in the communist state.

Enterprise zones were established in cities including Shanghai and Shenzen. China was able to use the zones as incubators for the implementation of economic reforms.

Advantages and Disadvantages

In the U.S. and elsewhere, politicians and economists disagree on the degree of success of enterprise zones. Opponents of the concept argue that its success stories would have happened anyway without costly government intervention.

Some studies have found that enterprise zones can increase export levels for the countries that establish them and for countries that trade with them.

Enterprise zones also have been criticized for creating excessive and expensive bureaucracy.