Black Tax: Evidence of Racial Discrimination in Municipal Borrowing Costs

50 Pages Posted: 6 Apr 2022 Last revised: 24 Feb 2023

See all articles by Ashleigh Eldemire-Poindexter

Ashleigh Eldemire-Poindexter

Haslam College of Business, University of Tennessee

Kimberly F. Luchtenberg

American University - Department of Finance and Real Estate

Matthew Wynter

Stony Brook University, College of Business

Date Written: October 17, 2022

Abstract

Municipalities with higher proportions of Black residents pay higher borrowing costs to issue rated bonds compared to other cities and counties that issue within the same state and year. These higher costs are unexplained by credit risk, more pronounced in states with higher levels of racial resentment, and robust to state-tax incentives to hold municipal bonds. In time-series tests using political election periods during which racial resentment has been shown to intensify, we find that the differences in borrowing costs also increase. Collectively, the findings illustrate that racial bias can increase borrowing costs, especially where racial resentment is severe.

Keywords: Municipal bonds, Discrimination, Borrowing costs

JEL Classification: H74, J15, G12

Suggested Citation

Eldemire-Poindexter, Ashleigh and Luchtenberg, Kimberly F. and Wynter, Matthew, Black Tax: Evidence of Racial Discrimination in Municipal Borrowing Costs (October 17, 2022). Available at SSRN: https://ssrn.com/abstract=4064013 or http://dx.doi.org/10.2139/ssrn.4064013

Ashleigh Eldemire-Poindexter (Contact Author)

Haslam College of Business, University of Tennessee ( email )

Knoxville, TN 37996
United States

Kimberly F. Luchtenberg

American University - Department of Finance and Real Estate ( email )

Kogod School of Business
4400 Massachusetts Ave., N.W.
Washington, DC 20016-8044
United States

Matthew Wynter

Stony Brook University, College of Business ( email )

306 Harriman Hall
Stony Brook, NY 11794
United States

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