An Empirical Examination of Municipal Financial Policy

Roger Gordon and Joel Slemrod

No 1599, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Current U.S. tax law creates a variety of incentives affecting municipal financial policy. Under current law,municipalities can borrow at a tax-exempt interest rate yet can earn the full market rate of return on any assets held. Residents, in contrast, if they borrow or lend as individuals,pay or earn the market rate of return but after personal income taxes. These differences in rates of return create a variety of arbitrage opportunities, allowing communities/residents to borrow at low rates and invest at higher rates.The purpose of this paper is to examine empirically the financial policy of municipalities in four states (Connecticut, Maine, Massachusetts and Rhode Island) to see to what degree these municipalities attempt to take advantage of each of the available opportunities to engage in tax arbitrage. Our datacomes from the 1980 U.S. Census of Population and Housing, and the 1977 U.S.Census of Governments. We find clear evidence that communities do actively engage in such tax arbitrage.

Date: 1985-04
Note: PE
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

Published as Gordon, Roger H. and Joel Slemrod. "An Empirical Examination of Municipal Financial Policy." State and Local Public Finance, edited by Harvey S. Rosen. Chicago: UCP, 1986, pp. 53-78.
Published as An Empirical Examination of Municipal Financial Policy , Roger H. Gordon, Joel B. Slemrod. in Studies in State and Local Public Finance , Rosen. 1986

Downloads: (external link)
http://www.nber.org/papers/w1599.pdf (application/pdf)

Related works:
Chapter: An Empirical Examination of Municipal Financial Policy (1986)
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:nbr:nberwo:1599

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w1599

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().