State Income Tax Changes and the Demand for Municipal Bond Funds

Jon A. Fulkerson and Nancy L. Haskell ()
Additional contact information
Jon A. Fulkerson: University of Dayton, Dayton, OH, USA
Nancy L. Haskell: University of Dayton, Dayton, OH, USA

Quarterly Journal of Finance (QJF), 2021, vol. 11, issue 04, 1-35

Abstract: We consider how state income tax changes affect the demand for municipal bonds by in-state investors. A tax increase (decrease) makes investing in municipal bonds more (less) desirable, and theory predicts a change in demand by investors until the yields on municipal bonds reach a new equilibrium. Using a sample of state-specific municipal bond funds, we find states with tax decreases have net outflows in the following year of approximately 2% per percentage point drop in tax rates, while tax increases lead to inflows around 1.58%. We find that the response to tax changes is not the immediate reallocation predicted in perfect markets with no frictions.

Keywords: Municipal bonds; state income taxes; mutual funds (search for similar items in EconPapers)
Date: 2021
References: Add references at CitEc
Citations:

Downloads: (external link)
http://www.worldscientific.com/doi/abs/10.1142/S2010139221500166
Access to full text is restricted to subscribers

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:wsi:qjfxxx:v:11:y:2021:i:04:n:s2010139221500166

Ordering information: This journal article can be ordered from

DOI: 10.1142/S2010139221500166

Access Statistics for this article

Quarterly Journal of Finance (QJF) is currently edited by Fernando Zapatero

More articles in Quarterly Journal of Finance (QJF) from World Scientific Publishing Co. Pte. Ltd.
Bibliographic data for series maintained by Tai Tone Lim ().