Tax Advantages and Imperfect Competition in Auctions for Municipal Bonds

• 成果类型: Article
• 署名作者: Garrett, Daniel; Ordin, Andrey; Roberts, James W.; Serrato, Juan Carlos Suarez
• 署名单位: University of Pennsylvania; University of Texas System; University of Texas Austin; Duke University; National Bureau of Economic Research
• 刊物名称: REVIEW OF ECONOMIC STUDIES
• ISSN/ISSBN: 0034-6527
• DOI: 10.1093/restud/rdac035
• 发表日期: 2023
• 页码: 815-851
• 关键词: pass-through; exempt bonds; revenue; state; PARTICIPATION; subsidies; MARKET; entry; cost

摘要

We study the interaction between tax advantages for municipal bonds and the market structure of auctions for these bonds. We show that this interaction can limit a bidder's ability to extract information rents and is a crucial determinant of state and local governments' borrowing costs. Reduced-form estimates show that increasing the tax advantage by 3 pp lowers mean borrowing costs by 9-10%. We estimate a structural auction model to measure markups and to illustrate and quantify how the interaction between tax policy and bidder strategic behaviour determines the impact of tax advantages on municipal borrowing costs. We use the estimated model to evaluate the efficiency of Obama and Trump administration policies that limit the tax advantage for municipal bonds. Because reductions in the tax advantage inflate bidder markups and depress competition, the resulting increase in municipal borrowing costs more than offsets the tax savings to the government. Finally, we use the model to analyse a recent non-tax regulation that affects entry into municipal bond auctions.