The rural mobilization gap in U.S. place-based tax credit
Ian Helfrich
Decomposes the rural-versus-urban leverage gap in the U.S. New Markets Tax Credit using CDE (Community Development Entity) fixed effects. The raw gap of −0.262*** in private-leverage ratio collapses to −0.047 (p = 0.64, insignificant) once between-CDE selection is absorbed. Approximately 80% of the aggregate rural penalty is between-CDE allocation, not within-CDE deployment. The rural mobilization debate is therefore an intermediary-selection problem, not a market-structure problem, with direct implications for CDFI Fund allocation rules.
The paper makes three contributions. First, it constructs a project-level panel linking every NMTC Qualified Equity Investment from FY2001 to FY2022 to the issuing CDE and the receiving QALICB, with rural/non-metro tract flagging from the OMB and ERS definitions. Second, it runs the leverage-gap decomposition with CDE fixed effects, showing that the apparent rural penalty is almost entirely between-CDE selection. Third, it tests for bunching at the 20% non-metro statutory mandate using a Chetty-Kleven style discontinuity in the cumulative-deployment distribution. The null is clean: the mandate does not bind in cumulative-deployment data, suggesting CDEs satisfy the mandate ex post rather than treating it as a binding constraint ex ante.
The policy implication is that routing allocations toward high-leverage urban-experienced CDEs with rural carve-outs (or training rural-specialized CDEs to leverage more aggressively) is a much cheaper fix than subsidizing rural projects directly.