The sheet EZDescription describes the variables for this question

Question.docx

The sheet EZDescription describes the variables for this question. The data are on unemployment claims in Anderson (IN) from 1980 through November 1988. In 1984, an enterprise zone (“EZ”) was located in Anderson (as well as other cities in Indiana). An EZ provides “incentives for businesses to locate or expand in these distressed and blighted areas, which are often traditional downtown areas or old industrial and manufacturing areas that have gone through a protracted period of decline. Typically, EZ incentives consist of tax instruments, such as property tax abatements, income tax deductions and credits for employment creation, capital investment, and income creation in the EZs” (Indiana Business Journal).

1. Regress ln(uclms) on a linear time trend and 11 (!) monthly dummy variables. What was the overall trend in unemployment claims over this period? Interpret the coefficient on time? Is there evidence of seasonality in unemployment claims?

2. Add ez, a dummy variable equal to one in the months Anderson had an EZ, to the regression in part (1). Does having the EZ seem to decrease unemployment claims?

3. What assumptions do you need to make to attribute the effect in part (2) to the creation of an EZ?