Indian Tribal Government Access to Tax-Exempt Bond Financing

Abstract

While prior research focuses on Federal assistance to Native American tribal governments through spending programs, we examine tax incentive use by tribes. Tribal governments can issue tax-exempt bonds where the interest rates are lower because the Federal government does not tax bondholder on the interest they receive. To provide context, we briefly summarize the tax rules for tax-exempt bonds and describe tribal tax-exempt borrowing between 1987 and 2010. These data have not been published previously. Unlike most studies of tax-exempt bonds that examine how much is borrowed, we start by modeling the decision of a tribal government to borrow using tax-exempt bonds. We find tribes with resources, either gaming income or royalties, but that have members in need are more likely to borrow using tax-exempt bonds. Of those tribes that do borrow, the amount increases with the interest rate spread relative to Treasuries, gaming income and per capita income.

Keywords: Tribal governments, Tax-exempt bonds

JEL Classification: H-200