TY  - JOUR
AU  - Gordon,Roger H.
AU  - Slemrod,Joel
TI  - An Empirical Examination of Municipal Financial Policy
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 1599
PY  - 1985
Y2  - April 1985
UR  - http://www.nber.org/papers/w1599
L1  - http://www.nber.org/papers/w1599.pdf
N1  - Author contact info:
Roger H. Gordon
Department of Economics 0508
University of California, San Diego
9500 Gilman Drive, Dept. 0508
La Jolla, CA 92093
Tel: 858/534-4828
Fax: 858/534-7040
E-Mail: rogordon@ucsd.edu

Joel Slemrod
University of Michigan Business School
701 Tappan Street
Room R5396
Ann Arbor, MI  48109-1234
Tel: 734/936-3914
Fax: 734-615-4323
E-Mail: jslemrod@umich.edu
M1  - published as Roger H. Gordon, Joel B. Slemrod. "An Empirical Examination of Municipal Financial Policy," in Harvey S. Rosen, ed., "Studies in State and Local Public Finance" University of Chicago Press (1986)

AB  - Current U.S. tax law creates a variety of incentives affecting municipal financial policy. Under current law,municipalities can borrow at a tax-exempt interest rate yet can earn the full market rate of return on any assets held. Residents, in contrast, if they borrow or lend as individuals,pay or earn the market rate of return but after personal income taxes. These differences in rates of return create a variety of arbitrage opportunities, allowing communities/residents to borrow at low rates and invest at higher rates.The purpose of this paper is to examine empirically the financial policy of municipalities in four states (Connecticut, Maine, Massachusetts and Rhode Island) to see to what degree these municipalities attempt to take advantage of each of the available opportunities to engage in tax arbitrage. Our datacomes from the 1980 U.S. Census of Population and Housing, and the 1977 U.S.Census of Governments. We find clear evidence that communities do actively engage in such tax arbitrage.
ER  -