The traditional view of municipal finance holds that the federal tax-exemption of interest payments by state and local (municipal) governments provides a capital cost subsidy to municipal investment equal to the difference between interest rates on taxable and tax-exempt bonds. Recently, a new...

This article assesses recent changes in the structure of the municipal bond market. It reviews the tax legislation, judicial interpretations, and other factors that affect the yield on municipal bonds. These factors are then employed in a statistical analysis of the determinants of municipal...

During the recent flat tax debate, interest rates on long-term municipal bonds rose relative to the rate on U.S. Treasury bonds. This was widely attributed to expectations of a reduction in future tax rates. While an axiom of finance states that current asset prices reflect expectations about...

Why does Congress allow municipal interest payments to be exempted from federal income taxes in the face of a very large chronic deficit in the federal budget, even though no constitutional provision requires that this tax policy continue? The rhetoric of tax exemption is philosophical,...