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Are There Tax Effects in the Relative Pricing of U.S. Government Bonds?

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  • Green, Richard C
  • Odegaard, Bernt A

Abstract

The authors investigate the impact of the Tax Reform Act of 1986 on the relative pricing of U.S. Treasury Bonds. They obtain positive statistically and economically significant estimates for the implicit tax rates of a 'representative' investor in the late 1970s and early 1980s. After the 1986 tax reform, the point estimates for the tax rate are close to zero. Tests for a regime shift associated with the 1986 tax reform support the hypothesis that this event largely eliminated tax effects from the term structure. The authors discuss both institutional and statutory explanations for this change. Copyright 1997 by American Finance Association.

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Bibliographic Info

Article provided by American Finance Association in its journal Journal of Finance.

Volume (Year): 52 (1997)
Issue (Month): 2 (June)
Pages: 609-33

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Handle: RePEc:bla:jfinan:v:52:y:1997:i:2:p:609-33

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Cited by:
  1. Anderson, Ronald C. & Mansi, Sattar A. & Reeb, David M., 2003. "Founding family ownership and the agency cost of debt," Journal of Financial Economics, Elsevier, vol. 68(2), pages 263-285, May.
  2. Stuart Landon, 2009. "The capitalization of taxes in bond prices: Evidence from the market for Government of Canada bonds," EERI Research Paper Series EERI_RP_2009_20, Economics and Econometrics Research Institute (EERI), Brussels.
  3. Kozicki, Sharon & Tinsley, P.A., 2005. "What do you expect? Imperfect policy credibility and tests of the expectations hypothesis," Journal of Monetary Economics, Elsevier, vol. 52(2), pages 421-447, March.
  4. Ioannides, Michalis, 2003. "A comparison of yield curve estimation techniques using UK data," Journal of Banking & Finance, Elsevier, vol. 27(1), pages 1-26, January.
  5. Andrew Ang & Vineer Bhansali & Yuhang Xing, 2008. "Taxes on Tax-Exempt Bonds," NBER Working Papers 14496, National Bureau of Economic Research, Inc.
  6. Landschoot, A. van, 2003. "The Term Structure of Credit Spreads on Euro Corporate Bonds," Discussion Paper 2003-046, Tilburg University, Center for Economic Research.
  7. Junbo Wang & Chunchi Wu & Frank Zhang, 2005. "Liquidity, default, taxes and yields on municipal bonds," Finance and Economics Discussion Series 2005-35, Board of Governors of the Federal Reserve System (U.S.).
  8. Kozicki, Sharon & Tinsley, P. A., 2001. "Term structure views of monetary policy under alternative models of agent expectations," Journal of Economic Dynamics and Control, Elsevier, vol. 25(1-2), pages 149-184, January.
  9. Ertugrul, Mine & Hegde, Shantaram, 2008. "Board compensation practices and agency costs of debt," Journal of Corporate Finance, Elsevier, vol. 14(5), pages 512-531, December.
  10. Liu, Sheen & Shi, Jian & Wang, Junbo & Wu, Chunchi, 2007. "How much of the corporate bond spread is due to personal taxes?," Journal of Financial Economics, Elsevier, vol. 85(3), pages 599-636, September.
  11. Extension Faculty & Staff, 2011. "New York Economic Handbook, 2012," EB Series 121630, Cornell University, Department of Applied Economics and Management.
  12. Lin, Hai & Wang, Junbo & Wu, Chunchi, 2011. "Liquidity risk and expected corporate bond returns," Journal of Financial Economics, Elsevier, vol. 99(3), pages 628-650, March.
  13. Van Landschoot, Astrid, 2004. "Determinants of euro term structure of credit spreads," Working Paper Series 0397, European Central Bank.
  14. Elton, Edwin J. & Gruber, Martin J. & Agrawal, Deepak & Mann, Christopher, 2004. "Factors affecting the valuation of corporate bonds," Journal of Banking & Finance, Elsevier, vol. 28(11), pages 2747-2767, November.
  15. Jordan, James V. & Mansi, Sattar A., 2003. "Term structure estimation from on-the-run Treasuries," Journal of Banking & Finance, Elsevier, vol. 27(8), pages 1487-1509, August.

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