Tax-subsidized underpricing: The market for Build America Bonds

Dario Cestau, Richard C. Green and Norman Schürhoff
Authors registered in the RePEc Author Service: Norman Schuerhoff

Journal of Monetary Economics, 2013, vol. 60, issue 5, 593-608

Abstract: Build America Bonds (BABs) were issued by municipalities for 20 months as a part of the 2009 fiscal package. Unlike traditional tax-exempt municipals, BABs are taxable to the holder, but the Treasury rebates 35% of the coupon to the issuer. The stated purpose was to provide municipalities access to a more liquid market including foreign, tax-exempt, and tax-deferred investors. We find BABs do not exhibit greater liquidity than traditional municipals. BABs are more underpriced initially, particularly for interdealer trades. BABs also show a substitution from underwriter fees toward more underpricing, suggesting that the underpricing is a strategic response to the tax subsidy.

Date: 2013
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Citations: View citations in EconPapers (9)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:moneco:v:60:y:2013:i:5:p:593-608

DOI: 10.1016/j.jmoneco.2013.04.010

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