ARE TREASURY INFLATION PROTECTED SECURITIES REALLY TAX DISADVANTAGED?
In 1997, the U.S. Treasury introduced Inflation Protected Securities, commonly known as TIPS. Several in the finance field have since described these securities as "tax disadvantaged" relative to conventional securities, leading to serious questions regarding their appropriateness outside of tax-deferred accounts. In this article, we develop a framework that demonstrates that at least in a real sense the tax treatment of TIPS is trivially different from that of conventional Treasury securities. Moreover, empirically we find evidence that TIPS generally have after-tax yields comparable to, if not exceeding, conventional fixed-rate Treasury securities. We also show that TIPS have generally outperformed matched-maturity conventional Treasury securities in terms of after-tax rates of return. 2006 The Southern Finance Association and the Southwestern Finance Association.
Year of publication: |
2006
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Authors: | Hein, Scott E. ; Mercer, Jeffrey M. |
Published in: |
Journal of Financial Research. - Southern Finance Association - SFA, ISSN 0270-2592. - Vol. 29.2006, 4, p. 575-592
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Publisher: |
Southern Finance Association - SFA Southwestern Finance Association - SWFA |
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