The Long-Run Linkage Between Yields on Treasury and Municipal Bonds and the 1986 Tax Act
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.
|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|
|Contact details of provider:|| Web page: http://econwpa.repec.org|
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