Full Citation
Title: The Price of Diversity: Evidence from Municipal Bonds
Citation Type: Miscellaneous
Publication Year: 2024
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Abstract: This paper studies how the racial and ethnic demographic composition of U.S. municipalities is priced in the municipal bonds market. It leverages highfrequency financial data on the universe of municipal bonds issued between 2004 and 2019. More diverse cities pay higher costs on their debt: up to +10 basis points of yield-spread (+6%) per standard deviation increase of Black and Latino population shares, equivalent to +3.8% in total interest costs for the average bond. This holds controlling for maturity structure and credit ratings. Causal estimates of this diversity premium are based on a novel implementation of shift-share instruments for Black and Latino population shares. The effect is not driven by income, population trends, municipal revenues, amount of outstanding debt, or tax capacity of the issuers. The results are consistent with the discrimination of racial and ethnic minorities in the primary market for municipal bonds. Discrimination is not present in credit ratings and does not occur because of the underwriters involved in the issuance process. This evidence carries important implications for our understanding of public investments and the provision of public goods in local governments
User Submitted?: No
Authors: Ricca, Frederico
Publisher: University of British Columbia
Data Collections: IPUMS USA - Ancestry Full Count Data, IPUMS NHGIS
Topics: Labor Force and Occupational Structure, Race and Ethnicity
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