Tax distortions and bond issue pricing

• 成果类型: Article
• 署名作者: Landoni, Mattia
• 署名单位: Southern Methodist University
• 刊物名称: JOURNAL OF FINANCIAL ECONOMICS
• ISSN/ISSBN: 0304-405X
• DOI: 10.1016/j.jfineco.2018.05.005
• 发表日期: 2018
• 页码: 382-393
• 关键词: Municipal; bonds; Tax exempt; tax distortions; tax arbitrage; Coupon; Issue price

摘要

Original issue premium (OIP) bonds are the norm in the US tax-exempt market but very rare in the taxable market. A tax subsidy helps explain this disparity. Unlike bonds issued at par or discount, the price of OIP bonds can fall and yet remain above par, providing secondary market buyers with more tax-exempt coupon and less taxable market discount gain. The subsidy for OIP bonds explains additional, previously undocumented empirical facts. In a calibration exercise, the subsidy's expected cost to the U.S. Treasury is estimated at $1.7 billion per year. (C) 2018 Elsevier B.V. All rights reserved.