TY  - JOUR
AU  - Ang,Andrew
AU  - Bhansali,Vineer
AU  - Xing,Yuhang
TI  - Taxes on Tax-Exempt Bonds
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 14496
PY  - 2008
Y2  - November 2008
UR  - http://www.nber.org/papers/w14496
L1  - http://www.nber.org/papers/w14496.pdf
N1  - Author contact info:
Andrew Ang
Columbia Business School
3022 Broadway 413 Uris
New York, NY 10027
Tel: 212/854-9154
Fax: 212/662-8474
E-Mail: aa610@columbia.edu

Vineer Bhansali
PIMCO
840 Newport Center Drive
Newport Beach CA 92660
E-Mail: vineer.bhansali@pimco.com

Yuhang Xing
Columbia University
Jones School of Management, MS 531
Rice  University
6100 Main Street
Houston, TX 77004
Tel: 7133484167
E-Mail: yxing@rice.edu
AB  - 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.
ER  -