Why Is the Fragmented Municipal Bond Market So Costly to Investors and Issuers?

John M. Griffin, Nicholas Hirschey and Samuel Kruger

Journal of Economic Perspectives, 2025, vol. 39, issue 2, 235-60

Abstract: The municipal bond market plays a crucial role in providing capital to US municipalities and functions through a network of underwriters, municipal advisors, credit rating agencies, insurers, individual and institutional investors, and multiple regulators. Many of these market participants have significant asymmetric information and conflicting incentive structures, which can sometimes lead to disparate and seemingly inefficient outcomes. Puzzles documented in the academic literature include high underwriting costs, conflicting roles by municipal advisors, extreme and widely varying trade markups, investment holdings that are often not tax-efficient, inconsistent implied marginal tax rates, a heavy reliance on credit ratings, little benefit but widespread use of insurance, delayed use of call provisions, and inconsistent treatment of accounting information. We review issues in the municipal bond market and propose implementable suggestions that would hopefully allow for a more competitive and low-cost market for both taxpayers and investors.

JEL-codes: G12 G23 G24 G41 H22 H74 (search for similar items in EconPapers)
Date: 2025
References: Add references at CitEc
Citations:

Downloads: (external link)
https://www.aeaweb.org/doi/10.1257/jep.20241411 (application/pdf)
https://www.aeaweb.org/articles/materials/22991 (application/zip)
Access to full text is restricted to AEA members and institutional 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:aea:jecper:v:39:y:2025:i:2:p:235-60

Ordering information: This journal article can be ordered from
https://www.aeaweb.org/journals/subscriptions

DOI: 10.1257/jep.20241411

Access Statistics for this article

Journal of Economic Perspectives is currently edited by Enrico Moretti

More articles in Journal of Economic Perspectives from American Economic Association Contact information at EDIRC.
Bibliographic data for series maintained by Michael P. Albert ().