Tax Reform and the Market For Tax-Exempt Debt

James Poterba

No 2900, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper provides clear evidence that the yield spread between long-term taxable and tax-exempt bonds responds to changes in expected individual tax rates, a finding that refutes theories of municipal bond pricing that focus exclusively on commercial banks or other financial intermediaries. The results support the conclusion that in the two decades prior to 1986, the municipal bond market was segmented, with different investor clienteles at short and long maturities. The Tax Reform Act of 1986 is likely to affect this market, however, since it has restricted tax benefits from tax-exempt bond investment by commercial banks. Individual investors are increasingly important suppliers of capital to states and localities, and their tax rates are likely to be the primary determinant of the yield spread between taxable and tax-exempt interest rates in the future.

Date: 1989-03
Note: PE
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (38)

Published as Regional Science and Urban Economics, Vol. 19, No. 3, pp. 537-562, (August 1989).

Downloads: (external link)
http://www.nber.org/papers/w2900.pdf (application/pdf)

Related works:
Journal Article: Tax reform and the market for tax-exempt debt (1989)
Working Paper: TAX REFORM AND THE MARKET FOR TAX-EXEMPT DEBT (1989)
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:2900

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w2900

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 ().