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 a large sample of municipal bond data from 2001 to 2010 in the U.S., this paper documents the time variation of the value of municipal bond insurance, estimated from the insured and uninsured bonds yield at issue differentials. We find that insured municipal bonds carry significant lower...

In response to a request from the California Debt and Investment Advisory Commission, we propose a model to estimate default probabilities for bonds issued by cities. The model can be used with financial data available in Comprehensive Annual Financial Reports that cities are required to...

I examine how liquidity risk affects municipal bond pricing. Liquidity has become a central concern to municipal bond investors, issuers, and regulators since the recent collapse of the monoline municipal bond insurers. The results show that liquidity risk had a minimal effect on yield spreads...

As India rapidly urbanizes, urban governance and management in general, and meeting the financial needs of urban areas in particular, have acquired greater urgency. Sankhe et al. (2010: 15) have projected that by 2030, 590 million Indians will live in cities, more than double the corresponding...

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...

A recent IRS technical advice memorandum denied tax-exempt status to bonds of a development district on the grounds that the district was not “inherently accountable, directly or indirectly, to a general electorate.” This short piece reviews applicable law and private letter rulings to argue...

Fixed rate municipal bonds are often sold with an optional redemption feature giving issuers the right to call the bonds prior to maturity. The application of no-arbitrage bond option models to help assess the value of these optional redemption features though not common has been increasing....

Economic theory suggests that bond issuers of lower credit quality or higher opacity should be more likely to issue bonds with premium coupons (higher coupon rates relative to yields at issuance). Using a comprehensive data set of municipal bonds issued between 1992 and 2012 by more than 21,000...

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