Implicit tax rates priced in the cross section of municipal bonds are approximately two to three times as high as statutory income tax rates, with implicit tax rates close to 100% using retail trades and above 70% for interdealer trades. These implied tax rates can be identified on the cross...

This paper documents that nearly all tax-exempt (municipal) bonds with maturity greater than ten years are callable and call protection ends in ten years. The frequent use of callable debt financing by high grade tax exempt issuers, most of the municipal bonds in the sample are AAA or AA rated,...

This paper documents that nearly all tax-exempt (municipal) bonds with maturity greater than ten years are callable and call protection ends in ten years. The frequent use of callable debt financing by high grade tax exempt issuers, most of the municipal bonds in the sample are AAA or AA rated,...

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

This proposal would repeal section 103, which now exempts interest paid on state and local bonds. The exemption wastes most of its federal cost. The fraction of the cost delivered to borrowers induces them to undertake projects that would not be rational given the real cost of capital. The...

Using data from the California primary market, we find that on average Build America Bonds (BABs) have after-subsidy interest rates of approximately 72 basis points lower than tax-exempt bonds, and the saving increases with bond maturity. The implied tax rate for the marginal municipal bond...

U.S. Municipal bonds offer tax free investments to U.S. investors. Yet, they could become subject to taxation if they are purchased or sold in the secondary market. The tax rules are complex. We define four key principles that govern the taxation of municipal bonds

Based on the indirect arbitrage opportunities afforded citizens by tax-exempt debt issue, this article presents a model establishing equilibrium in the market for tax-exempt debt. The model yields two predictions. Increases in Federal income tax rates increase the spread between taxable and...

Currently, most subnational government borrowing in the United States is done via tax-exempt muni bonds. But these bonds are riddled with problems. They are inefficient at delivering the subsidy, and they create economic distortions of investment choices. They are inequitable, and they have...

This paper proposes an alternative to the traditional model for explaining the spread between taxable and tax-exempt bond yields. This alternative model is a special case of a general class of clientele models of portfolio choice and asset market equilibrium. In particular, we consider a setting...