Impact of the Primary Budget Deficit on the Nominal Long Term Interest Rate Yield on Tax Free Municipal Bonds

Richard Cebula (), Richard McGrath and Michael Toma

MPRA Paper from University Library of Munich, Germany

Abstract: This study empirically investigates the impact of the federal budget deficit on the nominal interest rate yield on high grade long term tax free municipal bonds. Within a system that includes income tax rates, international capital flows, and the primary budget deficit, which excludes net interest payments by the Treasury, co-integration and error-correction model estimation leads to the conclusion that the primary budget deficit acted to raise this interest rate yield over the 1973-1996 study period but that the causality was not bi-directional.

Keywords: primary deficit; tax free interest rate; crowding out (search for similar items in EconPapers)
JEL-codes: G12 H61 H74 (search for similar items in EconPapers)
Date: 2005-08-30
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Citations: View citations in EconPapers (2)

Published in Review of Business Research 1.6(2006): pp. 84-92

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