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 InfoPaper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 1358.
Date of creation: May 1984
Date of revision:
Publication status: published as Peek Joe and James A. Wilcox. "The Degree of Fiscal Illusion in Interest Rates: Some Direct Estimates." American Economic Review, Vol. 74, No. 5, ( December 1984), pp.1061 1066.
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- Peek, Joe & Wilcox, James A, 1984. "The Degree of Fiscal Illusion in Interest Rates: Some Direct Estimates," American Economic Review, American Economic Association, vol. 74(5), pages 1061-66, December.
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