Did Steve Forbes Scare the Municipal Bond Market?

Joel Slemrod, Timothy Greimel

NBER Working Paper No. 6583
Issued in May 1998
NBER Program(s):Asset Pricing, Public Economics

Evidence from daily market data is consistent with the view that the implicit tax rate on 5-year municipal bonds was affected by the chance of a flat tax becoming law, as proxied by the price of Steve Forbes' shares on the Iowa Electronic Market for political candidates; the spread was also affected by the likelihood of a Republican president and the impact of deficit reduction. No similar evidence for the impact of the flat tax could be found for the 30-year municipal market, although that spread does seem to be affected by the probability of a Republican winning the White House, and the lower taxes on capital income that presumably implies. These findings are consistent with market participants taking the flat tax seriously as a short-run possibility, but believing that over a three-decade period the taxation of capital is more likely to be influenced by the party in power than the tax reform fad of the moment. Alternatively it may reflect the fact that, due to several features of 30-year bonds, the changing likelihood of a flat tax is not clearly reflected in that market.

download in pdf format
   (518 K)

email paper

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w6583

Published: Joel Slemrod & Timothy Greimel, 1999. "Did Steve Forbes scare the US municipal bond market?," Journal of Public Economics, vol 74(1), pages 81-96.

Users who downloaded this paper also downloaded* these:
Poterba and Rueben State Fiscal Institutions and the U.S. Municipal Bond Market
Erickson, Goolsbee, and Maydew w9105 How Prevalent is Tax Arbitrage? Evidence from the Market for Municipal Bonds
Poterba Explaining the Yield Spread between Taxable and Tax-exempt Bonds: The Role of Expected Tax Policy
Mankiw and Poterba w5607 Stock Market Yields and the Pricing of Municipal Bonds
Feenberg and Poterba w3900 Which Households Own Municipal Bonds? Evidence From Tax Returns
NBER Videos

National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email:

Contact Us