Association for Public Policy Analysis & Management

Theory suggests that when communication between different levels of government is impaired or there are political pressures, central planners may not be able to maximize social welfare. We provide novel empirical support for these mechanisms using a recent place-based policy allowing governors to designate certain census tracts as opportunity zones (OZs), conferring tax incentives for investment. We collect communications between mayors (local officials) and governors (central planners) nominating which tracts to select. With these data, we find: First, even though mayors' nominations are by far the most important determinant of governors' OZ selections, nominations appear to be non-informative for the policy's effect. This finding is consistent with an impairment of communication and governors simply allocating projects to all interested local officials (universalism). Second, governors rubber stamp nominations more when political pressures are greater. Finally, rubber stamping resulted in 40% of selected OZs being in areas that were predictably expected to bring no additional investments.