Économie et Statistique n° 415-416 - 2008Geographic disparities
Impact of Urban Free Zones (Zones Franches Urbaines) on paid employment and business creation
France set up 41 “Urban Free Zones” (Zones Franches Urbaines: ZFUs) on 1 January 2004 to replace selected “Urban Regeneration Zones” (Zones de Redynamisation Urbaine: ZRUs). In ZFUs, businesses enjoy a five-year exemption from employers’ social contributions, corporate income tax, local business tax, and property tax. To assess the impact of these measures on paid employment and business creation, we estimated the change in both variables for ZFUs and for a control group of ZRUs that did not change status. We determined the control group by matching (“propensity scores” method) to allow for the selection bias affecting the choice of ZFUs in the total ZRU set. We calculated rates of change for the ZRU-to-ZFU transition year and later years. We find a significant positive impact of the shift to ZFU status on business and job creation. However, the effects should be qualified. Two-thirds of the increase in gross flows of local business units is due to an influx of economic activities from areas not targeted by the measures (i.e., these are transfers, not outright business creation). The presence of a ZFU does not appear to have a significant adverse impact on neighbouring areas. The cost per job created or transferred to ZFUs seems high, but we lack evaluations of policies aimed at similar objectives with which we could compare the ZFU system.