The Long-Run Linkage Between Yields on Treasury and Municipal Bonds and the 1986 Tax Act

William Crowder and Mark Wohar ()

Finance from University Library of Munich, Germany

Abstract: The Tax Act of 1986 changed the tax treatment of tax-exempt municipal bonds for banks. Since banks were the dominant participant in the municipal bond market until 1986, some believe that this resulted in the breakdown of the long-run equilibrium relationship between municipal and U.S. treasury securities of equal maturity. We present evidence that there was a significant break in the relationship around the time of the Tax Act and that once this break is accounted for, the relationship between municipal and treasury yields remains intact.

Keywords: municipal bonds; tax-exempt; 1986 Tax Act (search for similar items in EconPapers)
JEL-codes: G (search for similar items in EconPapers)
Pages: 26 pages
Date: 1997-02-25
Note: Type of Document - Postscript; prepared on IBM PC ; to print on PostScript; pages: 26; figures: included
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Persistent link: https://EconPapers.repec.org/RePEc:wpa:wuwpfi:9702005

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