State Income Tax and Local Government Borrowing Cost Revisited

Wes Clarke and Robert L. Bland

Municipal Finance Journal, 2003, vol. 24, issue 2, 1 - 15

Abstract: Theories of the debt market generally suggest that, in states with an income tax, municipal bonds are attractive to investors because the income realized from the bond is exempt from both federal and state taxation. Previous research suggested that borrowing costs in states with no personal income tax are higher because those investments derived no benefit from their exemption from a state income tax. Recent research has questioned whether this is the case. It has also been suggested that, in the case of Texas, borrowing costs are higher than average for a number of reasons other than that state’s lack of a personal income tax. For this study, we analyze a national sample of 1,037 competitively sold issues and find that borrowing costs are, indeed, higher in Texas. Our analysis indicates a smaller effect for the state income tax than was previously thought and suggests that the market is not sensitive to the magnitude of the tax rate.We suggest that recent changes to the bond market have reduced the state income tax effect

Date: 2003
References: Add references at CitEc
Citations:

Downloads: (external link)
http://dx.doi.org/10.1086/MFJ24020001 (application/pdf)
http://dx.doi.org/10.1086/MFJ24020001 (text/html)
Access to the online full text or PDF requires a subscription.

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:ucp:munifj:doi:10.1086/mfj24020001

Access Statistics for this article

More articles in Municipal Finance Journal from University of Chicago Press
Bibliographic data for series maintained by Journals Division ().