The Supply Elasticity of Tax-Exempt Bonds

2009 National Tax Association Proceedings, Forthcoming

15 Pages Posted: 16 Jan 2011

See all articles by David Joulfaian

David Joulfaian

U.S. Department of the Treasury, Office of Tax Analysis (OTA); Georgetown University - Department of Economics

Thornton Matheson

International Monetary Fund (IMF)

Date Written: January 14, 2011

Abstract

How responsive is the supply of tax-exempt bonds to state and local government borrowing costs? This question is critical to the effectiveness of current federal tax policies designed to stimulate investment in infrastructure and education. Would states borrow more if their cost of capital were lower, and how much more would they borrow? To examine the magnitude of the supply elasticity, panel data on aggregate state issuance of public-purpose bonds are assembled from information reported on tax returns filed by state and local governments (Form 8038-G) for the years 1988-2006. The findings suggest that bond issuance is sensitive to borrowing costs.

Keywords: State and Local Debt, Interest Rates, and Tax Exemption

JEL Classification: G12, H20, H24, H74

Suggested Citation

Joulfaian, David and Matheson, Thornton, The Supply Elasticity of Tax-Exempt Bonds (January 14, 2011). 2009 National Tax Association Proceedings, Forthcoming. Available at SSRN: https://ssrn.com/abstract=1740693

David Joulfaian (Contact Author)

U.S. Department of the Treasury, Office of Tax Analysis (OTA) ( email )

1500 Pennsylvania Ave. NW
Washington, DC 20220
United States

Georgetown University - Department of Economics ( email )

37th St NW & O St NW
Washington, DC 20007
United States

Thornton Matheson

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

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