The Supply Elasticity of Tax-Exempt Bonds
2009 National Tax Association Proceedings, Forthcoming
15 Pages Posted: 16 Jan 2011
Date Written: January 14, 2011
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: Suggested Citation