What matters the most for economic development? Evidence from the Community Development Financial Institutions Fund

Governments use incentive programmes to attract new businesses. Due to limited resources, there are questions about which incentives are most effective. Using establishment data from California, and data on the location of disbursements through two federal programmes, we consider the effectiveness of different programmes in attracting new businesses. We find that the amount of funding through the New Markets Tax Credit programme has a significant impact on business activity but find no evidence of an effect from the Community Development Financial Institutions programme. Our results suggest that the effectiveness of these programmes depends on how they provide assistance.