The Long-Run Linkage Between Yields on Treasury and Municipal Bonds and the 1986 Tax Act
AbstractThe Tax Act of 1986 changed the tax treatment of tax-exempt municipal bonds for banks. Since banks were the dominant participant in the municipal bond market until 1986, some believe that this resulted in the breakdown of the long-run equilibrium relationship between municipal and U.S. treasury securities of equal maturity. We present evidence that there was a significant break in the relationship around the time of the Tax Act and that once this break is accounted for, the relationship between municipal and treasury yields remains intact.
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Bibliographic InfoPaper provided by EconWPA in its series Finance with number 9702005.
Length: 26 pages
Date of creation: 25 Feb 1997
Date of revision:
Note: Type of Document - Postscript; prepared on IBM PC ; to print on PostScript; pages: 26; figures: included
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Web page: http://126.96.36.199
municipal bonds; tax-exempt; 1986 Tax Act;
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