The impact of federal income tax rate cuts on the municipal bond market in the U.S.: A brief exploratory empirical note

Richard J. Cebula; Don Capener

doi:10.3934/QFE.2018.2.407

Quantitative Finance and Economics, 2018, 2(2): 407-412. doi: 10.3934/QFE.2018.2.407. Research article Special Issues

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The impact of federal income tax rate cuts on the municipal bond market in the U.S.: A brief exploratory empirical note

Richard J. Cebula, Don Capener

Davis College of Business, Jacksonville University, 2800 University Blvd. N., Jacksonville, FL 32211, USA

Received: , Accepted: , Published:

Special Issues: Computational Finance and Insurance

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Using annualized data for the 1974–2015 period, this study adopts a loanable funds approach to investigate empirically the impact of U.S. federal government fiscal policy of income tax rate cuts on the ex ante real interest rate yield on high grade municipal bonds. Empirical appears to show that the ex ante real interest rate yield on high grade tax free municipal bonds is a decreasing function of the maximum marginal federal personal income tax. Based upon this very preliminary, exploratory study, it follows that reducing federal income tax rates may act to raise the cost of borrowing to cities, counties, and states across the U.S.

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Keywords: ex ante real yield on municipal bonds; maximum marginal federal personal tax rate

Citation: Richard J. Cebula, Don Capener. The impact of federal income tax rate cuts on the municipal bond market in the U.S.: A brief exploratory empirical note. Quantitative Finance and Economics, 2018, 2(2): 407-412. doi: 10.3934/QFE.2018.2.407

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