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The Hidden Costs Of Private Activity Tax-Exempt Bonds

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  • Matthew R. Marlin

    (Duquesne University)

Abstract

A growing body of literature indicates that the tax-exempt bond market is subject to regional segmentation by states. This assumption implies that there are in fact 50 separate tax-exempt bond markets, each finding its own equilibrium yield level according to market conditions in its respective state. If this is indeed the case, then those states that issued large volumes of private activity tax-exempt bonds in the belief that they represented a costless subsidy were in error. This study shows that the increased supplies of private activity tax-exempt debt issued in the states resulted in significantly higher interest rates for all types of debt.

Suggested Citation

  • Matthew R. Marlin, 1991. "The Hidden Costs Of Private Activity Tax-Exempt Bonds," The Review of Regional Studies, Southern Regional Science Association, vol. 21(3), pages 277-290, Fall.
    • Handle: RePEc:rre:publsh:v21:y:1991:i:3:p:277-290
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    References listed on IDEAS

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    1. Trzcinka, Charles A, 1982. "The Pricing of Tax-Exempt Bonds and the Miller Hypothesis," Journal of Finance, American Finance Association, vol. 37(4), pages 907-923, September.
    2. Hendershott, Patric H & Kidwell, David S, 1978. "The Impact of Relative Security Supplies: A Test with Data from a Regional Tax-Exempt Bond Market," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 10(3), pages 337-347, August.
    3. Poterba, James M., 1989. "Tax reform and the market for tax-exempt debt," Regional Science and Urban Economics, Elsevier, vol. 19(3), pages 537-562, August.
    4. Kidwell, David S. & Trzcinka, Charles A., 1983. "The Impact of the New York City Fiscal Crisis on the Interest Cost of New Issue Municipal Bonds," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 18(3), pages 381-399, September.
    5. Leonard, Paul A., 1983. "Some factors determining municipal revenue bond interest costs," Journal of Economics and Business, Elsevier, vol. 35(1), pages 71-82.
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