TY  - JOUR
AU  - Metcalf,Gilbert
TI  - Federal Taxation and the Supply of State Debt
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 3255
PY  - 1993
Y2  - December 1993
UR  - http://www.nber.org/papers/w3255
L1  - http://www.nber.org/papers/w3255.pdf
N1  - Author contact info:
Gilbert E. Metcalf
Department of Economics
Tufts University
Medford, MA 02155
1500 Pennsylvania Ave., NW
Tel: 617/627-3685
Fax: 617/627-3917
E-Mail: gilbert.metcalf@tufts.edu
AB  - This paper presents a model of debt finance at the sub-national level from which municipal bond supply equations are derived. Federal tax considerations are shown to be important determinants of the price entering the bond supply equation. Using data on 40 state governments over a seven year period in the 1980s, I show that federal tax rates have an important effect on the supply of municipal bonds - independent of the demand side effect that is usually considered in the literature. Furthermore, the effect persists after controlling for capital expenditures, thereby suggesting that municipal bond proceeds are fungible at the margin. This has implications for the measurement of the tax expenditure associated with tax exempt debt. 
ER  -