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Quantitative Finance and Economics

2018, Volume 2, Issue 2: 407-412. doi: 10.3934/QFE.2018.2.407
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The impact of federal income tax rate cuts on the municipal bond market in the U.S.: A brief exploratory empirical note

  • Davis College of Business, Jacksonville University, 2800 University Blvd. N., Jacksonville, FL 32211, USA
  • Received: 12 December 2017 Accepted: 10 April 2018 Published: 07 June 2018

  • JEL Codes: G41, G12

  • Using annualized data for the 1974–2015 period, this study adopts a loanable funds approach to investigate empirically the impact of U.S. federal government fiscal policy of income tax rate cuts on the ex ante real interest rate yield on high grade municipal bonds. Empirical appears to show that the ex ante real interest rate yield on high grade tax free municipal bonds is a decreasing function of the maximum marginal federal personal income tax. Based upon this very preliminary, exploratory study, it follows that reducing federal income tax rates may act to raise the cost of borrowing to cities, counties, and states across the U.S.

    Citation: Richard J. Cebula, Don Capener. The impact of federal income tax rate cuts on the municipal bond market in the U.S.: A brief exploratory empirical note[J]. Quantitative Finance and Economics, 2018, 2(2): 407-412. doi: 10.3934/QFE.2018.2.407

    Related Papers:

  • Using annualized data for the 1974–2015 period, this study adopts a loanable funds approach to investigate empirically the impact of U.S. federal government fiscal policy of income tax rate cuts on the ex ante real interest rate yield on high grade municipal bonds. Empirical appears to show that the ex ante real interest rate yield on high grade tax free municipal bonds is a decreasing function of the maximum marginal federal personal income tax. Based upon this very preliminary, exploratory study, it follows that reducing federal income tax rates may act to raise the cost of borrowing to cities, counties, and states across the U.S.


    加载中
    [1] Cebula RJ (1997) An empirical note on the impact of the federal budget deficit on ex ante real long-term interest rates, 1973–1995. South Econ J 63: 1094–1099. doi: 10.2307/1061244
    [2] Cebula RJ (2014A) An exploratory analysis of the impact of budget deficits and other factors on the ex post real interest rate yield on tax-free municipal bonds in the U.S. Appl Financ Econ 24: 1297–1302.
    [3] Cebula RJ (2014B) Preliminary evidence on the impact of budget deficits on the nominal interest rate yield on ten-year U.S. treasury notes after allowing for the adoption of monetary policies involving quantitative easing. Econ Int 67: 181–200.
    [4] Cecchetti SG (2006) Money, banking and financial markets. New York: McGraw-Hill-Irwin.
    [5] Council of Economic Advisors (2013) Economic report of the president, 2013. Washington, D.C: U.S. Government Printing Office.
    [6] Federal Reserve Bank of St. Louis (2017) Economic research. Available from: https://fred.stlouisfed.org/.
    [7] Fortune P (1998) State fiscal institutions and the U.S. municipal bond market, In: Fiscal Institutions and Fiscal Performance, Chicago, IL: University of Chicago Press.
    [8] Madura J (2008) Financial markets and institutions, 8th ed. Mason, OH: Thomson Higher Learning.
    [9] Neusser K (2016) Time series econometrics. Switzerland: Springer.
    [10] Newey WK, West KD (1987) A simple, positive semi-definite, heteroskedasticity: An autocorrelation consistent covariance matrix. Einconometrica 55: 703–708. doi: 10.2307/1913610
    [11] Poterba JM, Rueben KS (1999) Municipal bond yields: Whose tax rates matter? Natl Tax J 41: 219–233.
    [12] Poterba JM, Rueben KS (2001) Fiscal new, state budget Rules, and tax-exempt bond yields. J Urban Econ 50: 537–562. doi: 10.1006/juec.2001.2233
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  • © 2018 the Author(s), licensee AIMS Press. This is an open access article distributed under the terms of the Creative Commons Attribution License (http://creativecommons.org/licenses/by/4.0)
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