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Taxable and Tax-Free Equivalence of Interest Rate Yields: A Brief Note

Author

Listed:
  • Cebula, Richard

Abstract

This paper demonstrates the appropriate way in which to translate a tax-free interest rate yield into an equivalent taxable interest yield when there is not only a federal income tax to account for but also a state income tax as well. The results shown indicate the importance of allowing for state income tax rates when computing interest rate yield equivalence.

Suggested Citation

  • Cebula, Richard, 2010. "Taxable and Tax-Free Equivalence of Interest Rate Yields: A Brief Note," MPRA Paper 55263, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:55263
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    File URL: https://mpra.ub.uni-muenchen.de/55263/1/MPRA_paper_55263.pdf
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    More about this item

    Keywords

    tax-free interest rate yields; taxable interest rate yields; equivalence computations; state income tax rates;
    All these keywords.

    JEL classification:

    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
    • H74 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Borrowing

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