Enterprise zones are popular incentives.

Individual states spend millions of dollars annually on "economic development" (as direct outlays, loans or deductions from taxes) in hopes of luring new businesses and creating jobs. Every legislative session brings pressure for new incentive programs, sometimes to attract a major development and sometimes to keep up with what neighboring states have done.

One of the most popular incentives employed by the states is the enterprise zone. As originally envisioned, an enterprise zone is a specific geographic area targeted for redevelopment on the basis of high Unemployment, poverty, age of housing stock or other evidence of economic weakness. Businesses that move into an enterprise zone to create jobs are eligible for various combinations of regulatory relief and tax abatements, credits, deductions and exemptions. Eligibility may include requirements that companies employ a certain percentage of local residents or people who have been on public assistance. Thirty-seven states and the District of Columbia have enterprise zone programs.

The attractiveness of these programs has led some states to considerably expand eligibility for them well beyond decaying inner cities. In some states, underdeveloped rural areas can qualify as enterprise zones. And in others (South Carolina, for example), enterprise zone incentives are available statewide. One result of extending enterprise zone benefits throughout a state is to lose the effect of targeting a particular area for development or redevelopment.

In some cases enterprise zone legislation has given rise to increased economic activity, but in others the benefits are...