انحراف مالیاتی و قیمت گذاری اوراق قرضه
Abstract
Keywords
JEL classification
1. Introduction
2. Empirical evidence
3. The taxation of bonds
4. A dynamic model of issuance and trading
5. Conclusion
References
Abstract
Original issue premium (OIP) bonds are the norm in the US tax-exempt market but very rare in the taxable market. A tax subsidy helps explain this disparity. Unlike bonds issued at par or discount, the price of OIP bonds can fall and yet remain above par, providing secondary market buyers with more tax-exempt coupon and less taxable market discount gain. The subsidy for OIP bonds explains additional, previously undocumented empirical facts. In a calibration exercise, the subsidy’s expected cost to the U.S. Treasury is estimated at $1.7 billion per year.
1. Introduction
Tax incentives affect investors’ portfolio and trading choices, asset prices, and ultimately issuers’ financing choices. If these incentives are not the expression of op- timal policies, the resulting distortions can cause inadvertent fiscal transfers, waste of real resources, and a suboptimal allocation of capital. The US municipal bond market is a unique setting to observe tax distortions. It is the world’s only sizable market for tax-exempt assets, with a total capitalization of nearly $4 trillion. The exemption of interest income attracts almost exclusively taxable investors, magnifying the effect of any remaining taxes. This paper shows an important, tax-driven municipal market peculiarity: the prevalence of bonds issued with a price above par, known as original issue premium (OIP) bonds. In 2015, 94% of all noncallable tax-exempt bonds were issued at a premium. These premiums are large: the average ten-year bond was issued at a price of 119 per 100 face value. By contrast, premium bonds are rarely offered in the taxable market. In 2015, less than 1% of corporate bonds, 17% of taxable municipal bonds, and 1% of US Treasury bonds were issued at a premium, with almost all the remainder issued near par.2 In this paper, I propose a novel explanation for this striking difference: the US tax code subsidizes premium tax-exempt bonds. I estimate this subsidy’s expected cost to the US Treasury to be about $1.7 billion per year