Did Steve Forbes Scare the Municipal Bond Market?

19 Pages Posted: 10 Feb 2000 Last revised: 1 Jul 2010

See all articles by Joel B. Slemrod

Joel B. Slemrod

University of Michigan, Stephen M. Ross School of Business; National Bureau of Economic Research (NBER)

Timothy Greimel

University of Michigan Law School

Date Written: May 1998

Abstract

Evidence from daily market data is consistent with the view that the implicit tax rate on 5-year municipal bonds was affected by the chance of a flat tax becoming law, as proxied by the price of Steve Forbes' shares on the Iowa Electronic Market for political candidates; the spread was also affected by the likelihood of a Republican president and the impact of deficit reduction. No similar evidence for the impact of the flat tax could be found for the 30-year municipal market, although that spread does seem to be affected by the probability of a Republican winning the White House, and the lower taxes on capital income that presumably implies. These findings are consistent with market participants taking the flat tax seriously as a short-run possibility, but believing that over a three-decade period the taxation of capital is more likely to be influenced by the party in power than the tax reform fad of the moment. Alternatively it may reflect the fact that, due to several features of 30-year bonds, the changing likelihood of a flat tax is not clearly reflected in that market.

Suggested Citation

Slemrod, Joel B. and Greimel, Timothy, Did Steve Forbes Scare the Municipal Bond Market? (May 1998). NBER Working Paper No. w6583. Available at SSRN: https://ssrn.com/abstract=160711

Joel B. Slemrod (Contact Author)

University of Michigan, Stephen M. Ross School of Business ( email )

701 Tappan Street
Room R5396
Ann Arbor, MI 48109-1234
United States
734-936-3914 (Phone)
734-763-4032 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Timothy Greimel

University of Michigan Law School ( email )

625 South State Street
Ann Arbor, MI 48109-1215
United States

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