TY  - JOUR
AU  - Slemrod,Joel
AU  - Greimel,Timothy
TI  - Did Steve Forbes Scare the Municipal Bond Market?
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 6583
PY  - 1998
Y2  - May 1998
UR  - http://www.nber.org/papers/w6583
L1  - http://www.nber.org/papers/w6583.pdf
N1  - Author contact info:
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
AB  - 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.
ER  -