Opportunity Zones and the Importance of Banks in the Community

Abstract The opportunity zone (OZ) tax incentive program was introduced under the Tax Cuts and Jobs Act in 2017. Its aim is to stimulate investment in low- to moderate-income communities by offering tax benefits to investors. In this study, we evaluate the effect of the OZ program on small business lending and bank deposits in OZ-designated tracts. We use a dataset of tract-level small business loans and deposits from 2016 to 2021 with a difference-in-differences estimator on matched treatment (OZ-designated) and control (OZ-eligible but not designated) US Census tracts. Our findings indicate a modest increase in the total amount and number of originations of small business loans, translating to approximately $100 per tract resident. Additionally, OZ-designated tracts experienced a 6 to 10% increase in deposits relative to matched control groups, indicating enhanced economic activity. These results underscore the potential of the OZ program to foster economic growth and financial inclusion in underserved communities.