Municipal bonds are bonds issued by local and state governments to raise funds for public works with interest payment(s) that are generally exempt from federal taxes, and often from state and local taxes as well

We argue that the tax-exempt status of municipal bonds provides little or no subsidy to capital investment by communities. Instead, the tax exemption simply provides arbitrage opportunities to high and low tax bracket individuals while leaving individuals in intermediate tax brackets essentially...

We analyze an extensive sample of tax-exempt and taxable municipal bonds to better understand how municipals behave without federal tax-exemption. We find taxable municipals are issued at higher yields in high state tax rate jurisdictions, are less likely to be issued in these areas, and more...

This paper uses data from 1988 federal income tax returns, which asked taxpayers to report their tax-exempt interest income as an information item, to analyze the distribution of tax-exempt asset holdings. More than three quarters of the tax-exempt debt held by households was held by those with...