College of Business Professor Presents Paper on Discrimination in Municipal Borrowing at Brookings Institute Conference |

Matthew Wynter, research professor at Stony Brook University College of Business, presented his article: “Black Tax: Evidence of Racial Discrimination in Municipal Borrowing Costs,” to Brookings Institute Municipal Finance Conference 2022held online July 18-20.

The paper, co-authored with Ashleigh Eldemire Poindexter of the University of Tennessee and Kimberly Luchtenberg of American University, shows that municipalities with higher proportions of black residents pay higher borrowing costs to issue bonds rated against other cities and counties that broadcast in 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 periods of political elections in which racial resentment has been shown to escalate, research finds that differences in borrowing costs also increase. Collectively, the results illustrate that racial bias can increase borrowing costs, particularly when racial resentment is severe.

The Brookings Conference is considered the best municipal finance conference in the field, is highly selective, and brings together academics, policy makers, and market players.

Wynter also had another paper on minority and low-income homeownership accepted by the Review of Corporate Finance Studies. “Does home ownership reduce wealth disparities for low-income and minority households? uses limited data from the US Department of Housing and Urban Development’s (HUD) Housing Choice Voucher (HCV) program to study the wealth effects of homeownership for low-income households.

The paper examines whether becoming a homeowner affects the wealth of low-income white and minority households differently. HUD’s HCV program provides low-income households with housing assistance for rental and mortgage payments. To determine whether homeownership affects wealth, the article compares a household’s wealth as a renter to its own wealth as a homeowner, and uses the variation in wealth outcomes among households to measure the effect of property on racial disparities in wealth. Using this differences-in-differences approach, the research controls for the many unobservable and confounding differences within households that are likely to affect wealth accumulation, while also allowing wealth outcomes to vary by race.

Using this empirical approach, the article finds that low-income households that receive assistance to own a home experience increased wealth relative to their tenure as renters. However, these wealth gains are not present among low-income minority households. The results provide evidence that home ownership is a driver of wealth formation for low-income households and that home ownership does not inherently reduce racial disparities in wealth.

Wynter conducts research focused on behavioral and international finance. His research has been presented at finance and economics conferences around the world, including the Brookings Institution, the American Economic Association, and the China International Conference in Finance. His research has been published in the Review of Corporate Finance Studies, World Economy and in the Journal of Management, Policy, and Practice.

Melissa C. Keyes