The Tax Treatment of Government Bonds

John Norregaard

No 1997/025, IMF Working Papers from International Monetary Fund

Abstract: In their effort to finance fiscal deficits at a reasonable cost, governments compete with other users of financial capital. Governments, however, are in the unique position that they are the only debt suppliers that can determine the taxation of debt instruments they issue. Following an overview of the current tax treatment of government bonds in OECD countries, this paper argues that—on purely economic grounds—there are no reasons for exempting interest on government bonds. Administrative difficulties in capturing interest on many other debt instruments in the tax net may, however, provide a rationale for doing so.

Keywords: WP; interest; government bond; tax treatment; tax revenue; interest income; intramarginal interest differential; investor interest; net-of-tax interest cost; cost of capital; interest flow; interest deductibility; nonresident interest; interest from government bonds; tax-exempt bond; Personal income; Sovereign bonds; Withholding tax; Bonds; Income and capital gains taxes; Global (search for similar items in EconPapers)
Pages: 25
Date: 1997-03-01
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Citations: View citations in EconPapers (5)

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