The Hidden Costs Of Private Activity Tax-Exempt Bonds

Matthew R. Marlin
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Matthew R. Marlin: Duquesne University

The Review of Regional Studies, 1991, vol. 21, issue 3, 277-290

Abstract: A growing body of literature indicates that the tax-exempt bond market is subject to regional segmentation by states. This assumption implies that there are in fact 50 separate tax-exempt bond markets, each finding its own equilibrium yield level according to market conditions in its respective state. If this is indeed the case, then those states that issued large volumes of private activity tax-exempt bonds in the belief that they represented a costless subsidy were in error. This study shows that the increased supplies of private activity tax-exempt debt issued in the states resulted in significantly higher interest rates for all types of debt.

Date: 1991
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