TY  - JOUR
AU  - Metcalf,Gilbert E.
TI  - The Role of Federal Taxation in the Supply of Municipal Bonds: Evidence From Municipal Governments
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 3891
PY  - 1991
Y2  - November 1991
UR  - http://www.nber.org/papers/w3891
L1  - http://www.nber.org/papers/w3891.pdf
N1  - Author contact info:
Gilbert E. Metcalf
Room 3221
Department of the Treasury
Washington, DC 20220
1500 Pennsylvania Ave., NW
Tel: 202-622-0173
E-Mail: gilbert.metcalf@tufts.edu
AB  - This paper considers ways in which federal tax policy affects municipal asset and debt holdings. The tax treatment of municipal bonds and income creates an arbitrage opportunity for communities to issue tax exempt debt and invest in financial assets. I present evidence that suggests the rules in effect prior to 1986 to prevent this activity were not effective. I then develop and estimate a model of municipal bond supply. I find a semi-elasticity of 1.23 of long term debt with respect to the spread between the after tax rate of return and the municipal borrowing rate.
ER  -