In Conversation with Carlos Fernando Avenancio-León


Equitable Growth in Conversation is a recurring series where we talk with economists and other academics to help us better understand whether and how economic inequality affects economic growth and stability. In this installment, David Mitchell, the director of government and external relations at the Washington Center for Equitable Growth, speaks with Carlos Fernando Avenancio-León, an assistant professor of finance at the Rady School of Finance at the University of California, San Diego, whose work focuses on finance, labor economics, and group inequality. Specifically, he researches the role of financial mechanisms in economic redistribution and its implications for disadvantaged communities. His research published in Equitable Growth’s Working Paper series,The Assessment Gap: Racial Inequalities in Property Taxationand his policy brief on the topic,Misvaluations in local property tax assessments cause the tax burden to fall more heavily on Black, Latinx homeowners,” are among the topics he will discuss, alongside his ongoing research as a 2018 Equitable Growth grantee on the Voting Rights Act and economic inequality, at Equitable Growth’s virtual biennial policy conference on September 20 and 21.

In a recent conversation, Mitchell and Avenancio-León discuss:

  • The importance of the Voting Rights Act of 1965 on the livelihoods of Black Americans
  • The immediate relevance of the John Lewis Voting Rights Advancement Act of 2021
  • The link between increasing political polarization and rising economic inequality
  • Breaking the cycle of rising political polarization and increasing economic insecurity
  • Statehood for Washington, D.C. and Puerto Rico
  • Local property taxation and evidence of structural racism
  • Property appraisals and evidence of structural racism
  • Policy solutions to correct racial discrimination in local property tax assessments
  • New research in the area of equitable finance


David Mitchell: Before we jump into your really interesting research, I wanted to take a moment to learn more about your path to academia and what motivates your work. Can you say a little bit about how you landed at the University of California, San Diego?

Carlos Fernando Avenancio-León: The journey has been long. I wasn’t intending on being an academic at the beginning of my career. I was in Puerto Rico, where I grew up. And it was at the beginning of the Great Recession of 2007–2009—which Puerto Rico still hasn’t recovered from—that I started getting interested in understanding what was happening. In particular, I was interested in understanding the impact of financial institutions in generating economic inequality. Puerto Rico is one of the most unequal jurisdictions in the United States, and it was profoundly affected by the financial crisis and hence my interest in financial institutions.

The Great Recession, however, also affected many, many other institutions involving the relationship between Puerto Rico and the United States. Part of my research focus is on voting. In Puerto Rico, voting is a problem because we are not represented in Congress. And we cannot vote for the president while we are there. That’s something I experienced directly that affects economic inequality back home and is why it’s an important topic for me, which eventually led me to follow a career in academia because I had a lot of questions that were not easy to answer.

The importance of the Voting Rights Act of 1965 on the livelihoods of Black Americans

Mitchell: Well, that’s a great segue into the voting rights question. I know that’s a big focus of yours, the intersection between political power and voting rights and economic power and economic inequality. Last month, the U.S. House of Representatives passed the John Lewis Voting Rights Advancement Act, which would restore some key parts of the Voting Rights Act of 1965 that were weakened by the Supreme Court a number of years back. So, putting aside for the moment that it seems unlikely that the Senate is going to pass the bill named after the late civil rights activist and longtime congressman John Lewis, can you talk a little bit about how the original Voting Rights Act influenced political equality and economic equality in the past and how you see an update to the Voting Rights Act potentially improving the progress that we’ve made as a nation in protecting the right to vote?

Avenancio-León: The Voting Rights Act of 1965 was a very consequential deal. It influenced many aspects of the economic relationship between Black Americans and the federal government. Research by Elizabeth Cascio [Dartmouth College] and Ebonya Washington [Yale University] shows that following the enactment of the Voting Rights Act, you start seeing changes in provision of public goods and more public investments in Black communities and their residents. Research by Desmond Ang [Harvard Kennedy School] shows that immediately, because of the Voting Rights Act, there were improvements in voting and that voting led directly to this relationship with the increase in these public provisions. And what Abhay Aneja [University of California, Berkeley School of Law], my co-author, and I add to that line of research is we demonstrate that as a direct consequence of the Voting Rights Act, you start seeing reductions in inequality in labor market outcomes. There’s a direct impact on the economic well-being of Black individuals.

It’s important to understand the current situation in relation to the 1960s. Following the Voting Rights Act you start seeing an increase in Black elected officials. You start seeing that even non-Black elected officials, even conservative ones, start shifting their views, leaning more toward supporting civil rights legislation and a more liberal agenda in general. And you start to see that shift in the way politicians behave. Those shifts eventually led to very concrete effects. There was an increase in public-sector hiring and that public-sector hiring put pressure on private-sector wages at the time. And we’re talking about an effect that is larger than the direct effect of the public-sector hiring, so that’s important.

In addition, because of the Voting Rights Act, previous civil rights regulations became more effective because it’s easier to enforce regulations that are already on the books when you have the political means to enforce them, when you can give teeth to previous regulations. So, that’s another reason why the original Voting Rights Act worked.

The immediate relevance of the John Lewis Voting Rights Advancement Act of 2021

Mitchell: Right.

Avenancio-León: Now, fast-forward to today. A bill like the John Lewis Voting Rights Advancement Act is important because it will lead to similar situations. Not exactly the same because the economic environment is different, but the general idea is that you start putting pressure on politicians and you elect politicians that are more sympathetic to helping erase persistent economic and political inequalities. Following [the 2013 Supreme Court decision in] Shelby County v. Holder, which effectively nullified Section 5 of the Voting Rights Act [that barred states with a history of disenfranchisement from making voting rule changes that are intended to disenfranchise voters of color or might have that effect], we started seeing many states passing bills to try to restrict voting and to enact those bills into law.

Those legislative efforts have been amplified even more following the past presidential election. So, it’s not only an academic discussion of whether improving voting rights will work, because it has worked in the past, but also a political discussion about whether the John Lewis Voting Rights Advancement Act is needed to actually protect against eroding the gains that we have made over the past 55 years.

Mitchell: Right. Your research shows not just that in the 1960s, the expansion of voting rights reduced the Black-White wage divide and economic inequality, but also that the rollback of some of those voting rights protections is now exacerbating inequality.

Avenancio-León: Exactly. In some way, what Abhay and I initially wrote about the Shelby decision was just a cautionary note. It was early, in 2019, before the 2020 election. There were already bills intended to restrict voting but nothing of the same intensity as what is happening right now. I would expect, given what has happened over the past year and what is going to keep happening over the next few years because of the Supreme Court ruling a few months ago in Brnovich v. Democratic National Committee—which weakened another key provision of the Voting Rights Act—that if Congress does not reinforce voting rights again the way we did in 1965, then we will start seeing even more erosion than what we documented 2 years ago.

Breaking the cycle of rising political polarization and increasing economic insecurity

Mitchell: That’s fascinating. I think it’s intimidating in that it’s a self-perpetuating problem that you’re describing. If the political incentives are misaligned, then the economic policies may not come to fruition and then, as you point out, voters or would-be voters are deprived of access to the polls and access to the money to get to the polls or access to time away from work to get to the polls. This perpetuates the problem and accelerates the problem. How do we break the cycle?

Avenancio-León: I think to break the cycle, it has to be a series of small victories. I don’t think there’s a way of just either correcting the political system immediately or just enacting thoroughgoing economic reforms that would improve the well-being of people enough to actually, by the will of the people, ensure the democratic system works. That is not the way change happens.

I think what we can do is deliver small victories like the ones we see are being fought right now over increasing the minimum wage. That’s an important issue. Another one is the care infrastructure bill now being debated in Congress to improve the economic standing of people who don’t have the same economic access that other people have. Increased child care benefits would reduce the cost of people actually going to vote and going to get other jobs that would reduce inequality.

These are two examples of small victories. We cannot say that acting on them separately will causally lead to a better democracy, but together, as a basket, you start improving both the ability of people not only to go vote but also their satisfaction with the system, which will affect how people feel about their standing in the democratic process.

Statehood for Washington, D.C. and Puerto Rico

Mitchell: One maybe not very small reform idea that has been talked about for many years, and particularly with some renewed interest in recent years, is the combination of statehood for Washington, D.C., and your home of Puerto Rico. I feel compelled to ask if you have any views on that very live political question.

Avenancio-León: I think that’s a good example, and I want to make something very clear. The case of Puerto Rico is a large case of disenfranchisement. And let’s make no mistake that statehood for Puerto Rico is not only a matter of political status [the island is an unincorporated territory of the United States] but also a matter of economics. We are talking about more than 3 million people who currently are unable to vote for the president, unable to have representation in Congress, even when the federal government exercises a lot of power on the island. This is a very clear and large case of disenfranchisement and an example of how voting can actually help affect the economic well-being of a population and reduce inequality.

We, in Puerto Rico, have a governor who heads up our government, but we also have a board imposed by the federal government that can supersede the decisions that are made by our government, with clear consequences for Puerto Rico. One example of this was when the government of Puerto Rico tried to pass funding to combat gender violence against women. This is a problem in Puerto Rico and is a problem also here in the United States and throughout the world, especially during the pandemic, but the federal board imposed on us declined that request because they said it wasn’t a priority.

Following that board decision, two women were killed. And that generated massive protests on the island, to the point that eventually, the board reversed its decision. But you shouldn’t have to wait for somebody to die to actually understand the position that all Puerto Rican women and all women understand needs to be taken. We, in Puerto Rico, had already won the political battle at home, but the federal government, which we cannot actually vote for, took those decisions for us.

So, that’s one clear case of how a lack of voting power does have direct economic and social consequences for the island. And that’s why I believe the case of Puerto Rico, and also Washington, D.C., is not only a case of political status [Washington is a neither a state nor a territory, but rather a district], and I don’t want to dismiss that, but also a problem of disenfranchisement, which is super important and could be addressed even without a change of status. You could give Puerto Ricans the right to vote for the president, as Washington now has, without resolving the problem of status.

Mitchell: Fascinating. Like you say, disenfranchisement on a massive scale and a particularly apt example for the connection between political and economic disenfranchisement.

Local property taxation and evidence of structural racism

Mitchell: Switching gears now to another area that I know you’ve done a lot of research in—property taxation. I think this is similar, in some ways, in that you have clearly chosen a topic where the government has a lot of power; in this case, shaping what rates of tax folks pay. It’s not a naturally occurring market in that regard. The government is setting the rules, which is highly determinative of the outcome, so it’s similar to voting rights. Can you say a little bit about what drew you to the property tax issue and then explain a bit about what you found?

Avenancio-León: Sure. The backstory is that I’m always engaged in legal community service. I like to participate in that service. And during my time in the Bay Area, I was working as a volunteer for an organization that would give legal assistance to people facing evictions. We wouldn’t participate directly. We would just advise them. A large part of the problem I was facing is many of these people didn’t speak English so they just couldn’t understand what was going on.

A large part of my job was just translating, legally, to make sure they understood that they had 10 days to reply to a problem. But then, in the process of having those conversations, I would start realizing that a lot of things were happening. And one of those things was people were losing their properties because of their inability to pay their taxes. Not always directly—it’s not like you’re losing the property to the government—but they were unable to pay their mortgages in addition to their property taxes.

And I heard the constant complaint that the tax bills were just way too high. And they were way too high, relative to the experience that my colleagues, my academic colleagues, and my lawyer colleagues were facing. It was a completely different experience. And that’s what drove me to study this issue. There was the suspicion, perhaps from the perspective of empirical academic research, but not suspicion from the perspective of the community folks, locally speaking, that this was a widespread problem.

And the question that I and Troup Howard [an assistant professor of finance at the David Eccles School of Business at the University of Utah], my friend and co-author, were trying to figure out was how widespread were these high property tax assessments, and what were the drivers? We wanted to understand whether this was a case of intentional racism targeting these communities or an institutional feature that was actually driving the inequality.

This is why I like to focus a lot of my research on institutions. I think you don’t need persistent forms of discrimination or racial bias in order to find systemic racism embedded in the system. Even if you have Puerto Rican county assessors, even if you have Black folks leading the systems, many of those structures were designed in a time when they were not intended to help minority property owners. We have lost track of the way the system was designed, so by just forgetting the roots of the institutions, we may be participants in a system that is still amplifying those inequalities.

Let me tell you what my co-author and I find in the system of property taxation. What we find is that the main reason why there are higher property taxes for minority homeowners is because assessments are too high for these communities. Assessments can be too high for a few reasons, but one of the main reasons is that the characteristics of the home—such as the number of bathrooms, the number of bedrooms—those are well-assessed by the county assessors. They do a very good job at valuing the physical characteristics of a home. But then, there are the less tangible characteristics of a property, such as the location or the level of amenities, such that there’s a mismatch between how the market values it and the evaluation of the assessors. That difference is systematically overvaluing Black-owned properties.

If you own a house in a place that is poor or that is far away from transportation, then the market will reduce the value of that property because it doesn’t have all these amenities. But the assessors won’t do that. Conversely, in wealthy White neighborhoods, where people are very close to public transportation, with parks to enjoy and other amenities, the property is undervalued from a tax perspective because the physical characteristics are not what is driving the value of the home.

Then, there is a problem with appeals to property tax assessments. Black homeowners are less likely to appeal, and less likely to win if they appeal, and less likely to get a significant reduction if they win an appeal. This is a different institutional problem.

But the problem of the assessments not being accurate is a problem that does not require intentional discrimination. Given the long history of residential segregation in the United States, however, it’s going to amplify those preexisting racial burdens that were already in place, even if there’s no intention to do so.

Property appraisals and evidence of structural racism

Mitchell: So much of the discussion about race and the economy does focus on, like you say, the overt discrimination that we sometimes see. I think it’s important to distinguish your work on assessments for tax purposes from property appraisals, which are done by third parties, usually private actors, who help an owner of a house sell or refinance, where, actually, the opposite finding has been discovered. In appraisals, Black homeowners and other homeowners of color see their property values undervalued, whether this is because of implicit or explicit bias on the part of the appraisers themselves as opposed to maybe a systematic or institutional bias.

Avenancio-León: Yes. I think that is a good example, and I like that you are making the distinction that tax assessments and property appraisals are different. Even though both actions are meant to value the property, the results are completely different. Importantly, in most places in the United States, tax assessors cannot go inside the homes of individuals and even if it’s allowed legally, it’s not feasible in many cases. There have to be very specific circumstances where it’s both legally allowed and the county is small enough where it’s actually worth doing.

So, the way the assessment systems work does not allow for that face-to-face contact in a way that the property appraisal system does. When I appraise my home, I’m interacting directly with the bank lender. I think this is an area where we need more research to understand the institution of appraisals and see exactly what is driving the appraised values of homes. It could be there is more scope for overt discrimination in appraisals, but I would like to see if there is something else happening in the role of banks, for example, in the process. Banks don’t play a role in assessments, but they do play a role in appraisals, so perhaps there is something happening there as well.

Policy solutions to correct racial discrimination in local property tax assessments

Mitchell: Right. There could still be some structural element there. I’m curious how your working paper with Troup Howard on property tax assessments has been received. Have assessors in local jurisdictions that are resource-constrained and need to obviously make judgements about the values of tons of properties across their jurisdictions, have they been receptive to your findings? Are there tools that you or others have identified for them to start correcting these systematic errors that they’re making?

Avenancio-León: I’ve been surprised at how well our research has been received by county assessors. As I told you, many of them are just unaware, and some of them are minority assessors who are leading these offices. I think it’s a fixable problem to correct that doesn’t require high levels of interventions. But it’s a politically difficult problem too.

My co-author and I provide a proof of concept for a way to correct the [property assessment] algorithm—perhaps not the best algorithm possible, but we are just saying, “Look, if you use the public data, you could correct for this.” And I am aware that county assessor offices have better-quality data than are available to the public so they can do an even better job. So, from the technical point, this is not a hard problem.

The more difficult problem resides in how well it would be received by communities of homeowners if there were a change in assessment practices and those assessment practices substantially raise their tax bills or don’t correct the inequality in the assessments. What needs to be done is a little bit more political. We need either an organization, such as the International Association of Assessing Officers, or IAAO, which sets the standard for assessment practices, to adopt recommendations that can be better implemented by county assessors in such a way that county assessors can just look to the guidance that is set by this organization—or for the federal government to do so.

I think the U.S. Department of Housing and Urban Development could impose requirements that counties are compelled to improve their practices, without fear of liability that they are doing so on their own and also with the fear that if they don’t, there would be consequences. Whether by a private organization or by the federal government, such a coordination device would also help incentivize those counties that have a lower proclivity toward changing their practices.

There are a few ways in which this could be done by HUD. The department could countenance some levels of inequality that fall within a particular band, but if counties are too far away from that band, then HUD could impose restrictions. Or it could deploy a carrot-and-stick model, where the department provides more funding or takes away funding granted by HUD if they don’t meet these standards and would have the double effect of providing a set of incentives at the same time. Our expectation is that coordination across the United States is possible with respect to inequality in property assessments.

New research in the area of equitable finance

Mitchell: You’ve clearly thought a lot about the policy toolkit here, and those all sound like really promising channels through which to change the assessment process for the better. I want to transition now to some of the work you’ve done on what you call equitable finance. First of all, can you just define what you mean by that? I know you’re a professor of finance at a business school, so could you talk a little bit about how that changes your approach maybe to some of these questions above, as opposed to a more traditional economic discipline?

Avenancio-León: It’s not different. The way I see it, finance is just a specific focus inside a set of economic questions. So, for me, equitable finance is the set of problems where financial institutions are at the front and center of creating or reducing inequality. And the reason I like to emphasize equitable finance is because you can have a study of economic inequality that doesn’t give enough attention to the financial institutions.

Economic inequality is very broad, and many institutions are important. So, one can forget about the important role that financial institutions play, especially given they are such complex organizations. And conversely, from the finance perspective, one can study the institutions very well without really thinking about the impact they have on economic inequality. So, equitable finance is just a way to emphasize that the problems for financial institutions that may be affecting inequality need to be addressed in particular.

So, that’s what I do, and I think many other young researchers, for example Petra Vokata [Ohio State University], are doing as well.

As I mentioned at the beginning of our conversation, one of my interests in this is because it’s a big issue back home in Puerto Rico. You see very large financial institutions back home with a lot of monopoly power and during that period when the financial crisis was affecting everyone everywhere, I saw the effects that financial institutions had on inequality back home. This is very apparent from living in some places, and I’m sure Puerto Rico is not unique here. Financial institutions themselves are big players.

Mitchell: One theme of your work in all three of these areas we’ve discussed today is the role of institutions intermediating the market, whether it’s the government as a tax collector, as an election administrator, or, in this case of financial institutions, as provider or regulator, and how these different kinds of institutional power structures are responsible for different kinds of economic inequality and, ultimately, different levels of economic growth. I think this is one reason why we at the Washington Center for Equitable Growth are such big fans of your work. You are really hitting some of the key questions we think policymakers need to address. Thank you so much for your time and for walking us through your research. We look forward to featuring you at our policy conference. We’re so excited to have you there.

Avenancio-León: Thank you for the invitation, David. I’m looking forward to participating.



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