Graduate School of Chicago
University of Chicago
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NBER Working Papers and Publications
|August 2002||How Prevalent is Tax Arbitrage? Evidence from the Market for Municipal Bonds|
with Austan Goolsbee, Edward Maydew: w9105
Although tax arbitrage is central to the literatures on tax capitalization, implicit taxes, and even capital structure, there is little empirical evidence of the extent to which firms actually engage in tax arbitrage. This paper provides some evidence on the topic by focusing on a simple and observable corporate arbitrage strategy in the market for municipal bonds. It poses a puzzle for the literature, however, in that we find little evidence of municipal bond tax arbitrage by non-financial corporations. The overwhelming majority of firms are not engaging in the arbitrage at all and even among those engaged in arbitrage, many firms do less than a safe-harbor amount allowed by the tax authorities. Such a pattern is consistent with the presence of both fixed and marginal (i.e., that depen...
Published: Merle Erickson & Austan Goolsbee & Edward Maydew, 2003. "How Prevalent is Tax Arbitrage? Evidence from the Market for Municipal Bonds," National Tax Journal, vol 56(1, Part 2), pages 259-270.