Government programs aimed at encouraging private investment in certain, typically lower-income communities have proliferated in the U.S. in recent decades. By providing investment capital or tax credits to businesses or developers in distressed areas, these place-based programs generally aim to revitalize struggling neighborhoods and create employment opportunities for their economically disadvantaged residents. However, a common feature of these programs is that, while restricting where businesses may locate or invest in order to receive subsidies or tax breaks, they place few constraints on whom subsidized businesses must hire. Therefore, even programs ostensibly focused on narrowly defined neighborhoods have the potential to affect the distribution of employment and commuting patterns over a large geographic area. Further, to the extent that any new jobs subsidized under these programs fall into the hands of residents of distant communities, the local economic benefits of these programs may be diluted and any imbalances between the locations of jobs and housing exacerbated.

This paper explores the degree to which the federal government’s efforts to improve economic conditions for residents of some of the nation’s impoverished communities affect broader commuting patterns and, in particular, how they might be stymied due to business hiring in other, non-targeted areas. I specifically examine the local labor market impacts of the New Markets Tax Credit (NMTC) program, which aims to encourage private capital investment in moderate-to-low income neighborhoods throughout the country. Signed into law in 2000, the program gives tax credits to investors who make equity investments in Community Development Entities. These entities must invest the proceeds from those investments in businesses and real estate projects in certain designated low-income census tracts.

In general, the extent of private investment in a neighborhood is likely to be driven by unobservable characteristics of the neighborhood that could also be correlated with outcomes of interest. To address this endogeneity problem, I exploit a discontinuity in the rule that determines the eligibility of census tracts for NMTC-subsidized investment. This discontinuity generates quasi-experimental variation in investment in tracts around a certain income threshold. Taking advantage of a regression discontinuity design and rich administrative data on workers’ residence and workplace locations, I can evaluate the causal impacts of subsidized investment on local labor markets and commuting patterns.

Exploiting pseudo-random assignment of investment across neighborhoods generated by the formula structure of the NMTC program, I find evidence that resident employment gains are not commensurate with job creation in tracts that receive NMTC-subsidized investment. At the same time, commute distances to areas that receive investment increase, while commute distances of residents living in those communities do not fall. The results suggest that the local economic benefits of place-based programs may be diluted when subsidized business have scope to hire from broader regional labor markets. They also highlight the potential for place-based programs to worsen rather than improve jobs-housing imbalances and the extent of spatial mismatch within cities, which have important social and environmental consequences.