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The Long-Run Linkage Between Yields on Treasury and Municipal Bonds and the 1986 Tax Act

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Author Info

  • William J. Crowder

    (University of Texas at Arlington)

  • Mark E. Wohar

    (University of Nebraska at Omaha)

Abstract

The 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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File URL: http://128.118.178.162/eps/fin/papers/9702/9702005.pdf
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Bibliographic Info

Paper provided by EconWPA in its series Finance with number 9702005.

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Length: 26 pages
Date of creation: 25 Feb 1997
Date of revision:
Handle: RePEc:wpa:wuwpfi:9702005

Note: Type of Document - Postscript; prepared on IBM PC ; to print on PostScript; pages: 26; figures: included
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Web page: http://128.118.178.162

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Keywords: municipal bonds; tax-exempt; 1986 Tax Act;

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