Did Steve Forbes Scare the Municipal Bond Market? / Joel Slemrod, Timothy Greimel.

Format:

Book

Author/Creator:

Slemrod, Joel.

Contributor:

National Bureau of Economic Research.

Greimel, Timothy.

Series:

Working Paper Series (National Bureau of Economic Research) no. w6583.

NBER working paper series no. w6583

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 1998.

Summary:

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.

Notes:

Print version record

May 1998.