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The Relative Yields on Taxable and Tax-Exempt Debt

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  • Heaton, Hal

Abstract

A valuation model for corporate tax liabilities is developed and used to derive a relationship for the relative yields of taxable and tax-exempt debt. The model incorporates both the incomplete tax loss offset of the U.S. corporate tax code and the resulting probabilistic marginal tax rate. The relationship is then tested using regression analysis; the results are both positive and strong. Copyright 1986 by Ohio State University Press.

Suggested Citation

  • Heaton, Hal, 1986. "The Relative Yields on Taxable and Tax-Exempt Debt," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 18(4), pages 482-494, November.
    • Handle: RePEc:mcb:jmoncb:v:18:y:1986:i:4:p:482-94
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    Cited by:

    1. Lim, Terence & Lo, Andrew W. & Merton, Robert C. & Scholes, Myron S., 2006. "The Derivatives Sourcebook," Foundations and Trends(R) in Finance, now publishers, vol. 1(5–6), pages 365-572, April.

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