The Degree of Fiscal Illusion in Interest Rates: Some Direct Estimates
AbstractThis article demonstrates why the procedures used in previous studies do not permit inference about the relationship between interestrates and taxes. We present a model that leads to direct estimates of the degree to which interest rates respond to changes in tax rates. The empirical results imply that the adjustment of taxable interest rates has been large enough to render after-tax yields impervious to tax rate changes. Further, tax-exempt yields are unaffected by changes in taxrates. Thus, there is no evidence of fiscal illusion in interest rates.
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Bibliographic InfoArticle provided by American Economic Association in its journal American Economic Review.
Volume (Year): 74 (1984)
Issue (Month): 5 (December)
Other versions of this item:
- Joe Peek & James A. Wilcox, 1985. "The Degree of Fiscal Illusion in Interest Rates: Some Direct Estimates," NBER Working Papers 1358, National Bureau of Economic Research, Inc.
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