Abstract

http://ssrn.com/abstract=2333817
 


 



State Taxes, Limits to Arbitrage, and Differences in Municipal Bond Yields Across States


Paul Schultz


University of Notre Dame

September 30, 2013


Abstract:     
State taxation of municipal bonds is a market friction that can lead to segmentation of the municipal bond market by state. I derive bounds on differences in yields across states when taxes are the only market friction. Tests indicate that, as predicted, bonds from states that tax interest on in and out-of-state bonds equally have the highest yields. There are other frictions besides state taxes that prevent integration. Bonds from states that tax in and out-of-state bonds equally should have the same yields. There are however, significant and persistent differences in yields across these states.

Number of Pages in PDF File: 63

Keywords: municipal bond, arbitrage, taxes, financial crisis

JEL Classification: G12, G14, G18, H70, H74

working papers series


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Date posted: September 30, 2013  

Suggested Citation

Schultz, Paul, State Taxes, Limits to Arbitrage, and Differences in Municipal Bond Yields Across States (September 30, 2013). Available at SSRN: http://ssrn.com/abstract=2333817 or http://dx.doi.org/10.2139/ssrn.2333817

Contact Information

Paul Schultz (Contact Author)
University of Notre Dame ( email )
Notre Dame, IN 46556-5646
United States
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