Affordable Access

Taxes on Tax-Exempt Bonds



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 section of municipal bonds because a portion of secondary market municipal bond trades involve income taxes. After valuing the tax payments, market discount bonds, which carry income tax liabilities, trade at yields around 25 basis points higher than comparable municipal bonds not subject to any taxes. The high sensitivities of municipal bond prices to tax rates can be traced to individual retail traders dominating dealers and other institutions.

There are no comments yet on this publication. Be the first to share your thoughts.


Seen <100 times

More articles like this

Tax-exempt bonds.

on Michigan hospitals February 1983

A guide to tax-exempt bonds.

on JONA The Journal of Nursing Ad... June 1989

8 issue tax-exempt bonds.

on Modern healthcare September 1978
More articles like this..