Economics at your fingertips  

A Simple Model of the Taxable and Tax-Exempt Yield Curves

Richard Green

Review of Financial Studies, 1993, vol. 6, issue 2, 233-64

Abstract: I examine the anomalous behavior of the taxable and tax-exempt yield curves. Long municipal yields appear too high relative to the equivalent after-tax yield that can be earned in Treasury or corporate bonds. I discuss existing explanations of the problem and propose a simple model that relates the yields of taxable bonds to the yield curve for par tax exempts. The ratio of the tax-exempt yield to the taxable yield increases with maturity in the model, so it is consistent with observed phenomena such as inverted yield curves for taxables and contemporaneous rising yield curves for tax exempts. Statistical and descriptive comparisons between the yields the model and observed yields on par bonds that the model has some promise in explaining the apparent anomalies in the behaviors of the two yield curves. Article published by Oxford University Press on behalf of the Society for Financial Studies in its journal, The Review of Financial Studies.

Date: 1993
References: Add references at CitEc
Citations: View citations in EconPapers (24) Track citations by RSS feed

Downloads: (external link) full text (application/pdf)
Access to full text is restricted to JSTOR subscribers. See for details.

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:

Ordering information: This journal article can be ordered from

Access Statistics for this article

Review of Financial Studies is currently edited by Maureen O'Hara

More articles in Review of Financial Studies from Society for Financial Studies Oxford University Press, Journals Department, 2001 Evans Road, Cary, NC 27513 USA.. Contact information at EDIRC.
Bibliographic data for series maintained by Oxford University Press ( this e-mail address is bad, please contact ) and Christopher F. Baum ().

Page updated 2021-04-13
Handle: RePEc:oup:rfinst:v:6:y:1993:i:2:p:233-64