TITLE

THE ROLE OF FEDERAL TAXATION IN THE SUPPLY OF MUNICIPAL BONDS: EVIDENCE FROM MUNICIPAL GOVERNMENTS

AUTHOR(S)
Metcalf, Gilbert E.
PUB. DATE
December 1991
SOURCE
National Tax Journal;Dec91 Part 1, Vol. 44 Issue 4, p57
SOURCE TYPE
Academic Journal
DOC. TYPE
Article
ABSTRACT
This paper considers ways in which federal tax policy affects municipal asset and debt holdings. The tax treatment of municipal bonds and income creates an arbitrage opportunity for communities to issue tax-exempt debt and invest in financial assets. I present evidence that suggests the rules in effect prior to 1986 to prevent this activity were not effective. I then develop and estimate a model of municipal bond supply. I find a semi-elasticity of 1.23 of long-term debt with respect to the spread between the after-tax rate of return and the municipal borrowing rate.
ACCESSION #
9705182128

 

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