The relationship between government financial condition and expected tax rates reflected in municipal bond yields

Sangkyun Park

No 7, Staff Reports from Federal Reserve Bank of New York

Abstract: Yields on long-term municipal bonds reflect both current and expected future tax rates. This paper derives expected changes in tax rates from yields on short- and long-term municipal bonds and examines the relationship between expected changes in tax rates and the financial condition of the federal government between 1965 and 1994. The main empirical result is that a positive relationship exists between the expected tax rate and federal debt. Inflation also positively affects the expected tax rate, suggesting that investors may expect tight fiscal policies when inflation is high. Qualitative results are similar across specifications, estimators, and sample periods.

Keywords: Budget deficits; Fiscal policy; Municipal bonds; Taxation (search for similar items in EconPapers)
Date: 1995
References: Add references at CitEc
Citations:

Downloads: (external link)
https://www.newyorkfed.org/medialibrary/media/research/staff_reports/sr7.html (text/html)
https://www.newyorkfed.org/medialibrary/media/research/staff_reports/sr7.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:fip:fednsr:7

Ordering information: This working paper can be ordered from

Access Statistics for this paper

More papers in Staff Reports from Federal Reserve Bank of New York Contact information at EDIRC.
Bibliographic data for series maintained by Gabriella Bucciarelli ().