Does Government Play Favorites? Evidence from Opportunity Zones

The Opportunity Zone (OZ) program is one of the most comprehensive to promote development in distressed communities. A criticized feature is that state governors designate zones as OZs from many eligible tracts without scrutiny. We find that governors are more likely to select tracts with higher distress levels and tracts on an upward economic trajectory, which indicates that they select OZs in a systematic way on the basis of objective criteria. However, we also provide evidence that favoritism plays a role in governors’ decisions. The OZ designation is more likely for tracts in counties that supported the governor in an election and when executives or firms with an economic interest in the tract donated to the governor’s campaign. We further explore whether transparency and accountability measures affected states’ decisions. Our analysis suggests that while most measures had no discernible impact, publishing draft selections may mitigate favoritism and promote systematic decision-making.