The Tax Cuts and Jobs Act of 2017 included a special provision creating the Opportunity Zone program. Opportunity Zones are designated low-income census tracts that were designated to encourage investment in underinvested and overlooked community areas. The program offers a reduction in tax liabilities for capital gains. This paper uses a difference-in-difference model to offer a preliminary evaluation of the effects of the Opportunity Zone program on small business lending. I utilize tract level small business loan originations from the reporting requirements of the Community Reinvestment Act of 1977 to estimate the causal effects of the program. Small business lending trends in Opportunity Zone designated tracts are compared to the trends in low-income tracts that were eligible but unselected for the program using the difference-in-difference model. The results from the model demonstrate modest, but statistically insignificant, negative effects of the Opportunity Zone designation on lending for small businesses. The largely null results from this paper suggest that there may not be a clear relationship between OZ designation and small business lending, but more projects with longer time horizons and/or different socioeconomic metrics could conclude other findings.
Aaryav Nagpal (Fri,) studied this question.