Tax-subsidized underpricing: The market for Build America Bonds
Build America Bonds (BABs) were issued by municipalities for 20 months as a part of the 2009 fiscal package. Unlike traditional tax-exempt municipals, BABs are taxable to the holder, but the Treasury rebates 35% of the coupon to the issuer. The stated purpose was to provide municipalities access to a more liquid market including foreign, tax-exempt, and tax-deferred investors. We find BABs do not exhibit greater liquidity than traditional municipals. BABs are more underpriced initially, particularly for interdealer trades. BABs also show a substitution from underwriter fees toward more underpricing, suggesting that the underpricing is a strategic response to the tax subsidy.
Year of publication: |
2013
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Authors: | Cestau, Dario ; Green, Richard C. ; Schürhoff, Norman |
Published in: |
Journal of Monetary Economics. - Elsevier, ISSN 0304-3932. - Vol. 60.2013, 5, p. 593-608
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Publisher: |
Elsevier |
Saved in:
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