TY  - JOUR
AU  - Peek,Joe
AU  - Wilcox,James A.
TI  - Taxable and Tax-Exempt Interest Rates:  The Role of Personal and Corporate Tax Rates
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 1544
PY  - 1986
Y2  - May 1986
UR  - http://www.nber.org/papers/w1544
L1  - http://www.nber.org/papers/w1544.pdf
N1  - Author contact info:
Joe Peek
E-Mail: joe.peek@bos.frb.org

James A.. Wilcox
School of Business Administration
350 Barrows Hall
University of California, Berkeley
Berkeley, CA   94720-1900
Tel: 510-642-2455
E-Mail: jwilcox@haas.berkeley.edu
AB  - This paper investigates empirically the effects of personal and corporate taxes on taxable interest rates and on the spread between taxable and tax-exempt rates. Two main sets of results emerge. First, we establish that the effective marginal investors in the Treasury bill market are households, as opposed to tax-exempt institutions or corporations. We find no evidence of corporate tax rate effects on Treasury bill yields. The study is then extended to an examination of the tax-exempt market. The results there contradict the hypothesis that commercial bank arbitrage generally ensures that the taxable-tax-exempt interest rate spread is determined by the corporate tax rate. Our estimates decisively reject the corporate in favor of the personal income tax rate as being the relevant tax rate of the marginal investor in this market as well.
ER  -