Heterogeneous taxes and limited risk sharing: evidence from municipal bonds
File(s)HEtTaxes.pdf (1.57 MB)
Accepted version
Author(s)
Babina, Tania
Jotikasthira, Chotibhak
Lundblad, Christian
Ramadorai, Tarun
Type
Journal Article
Abstract
We evaluate the impacts of tax policy on asset returns using the U.S. municipal bond market. In theory, tax-induced ownership segmentation limits risk sharing, creating downward-sloping regions of the aggregate demand curve for the asset. In the data, cross-state variation in tax privilege policies predicts differences in in-state ownership of local municipal bonds; the policies create incentives for concentrated local ownership. High tax privilege states have muni bond yields that are more sensitive to variations in supply and local idiosyncratic risk. The effects are stronger when local investors face correlated background risk and/or diminishing marginal nonpecuniary benefits from holding local assets.
Date Issued
2021-01-01
Date Acceptance
2019-09-04
Citation
The Review of Financial Studies, 2021, 34 (1), pp.509-568
ISSN
0893-9454
Publisher
Oxford University Press
Start Page
509
End Page
568
Journal / Book Title
The Review of Financial Studies
Volume
34
Issue
1
Copyright Statement
© The Author(s) 2020. Published by Oxford University Press on behalf of The Society for Financial Studies. All rights reserved. For permissions, please e-mail: journals.permissions@oup.com.
This article is published and distributed under the terms of the Oxford University Press, Standard Journals Publication Model (https://academic.oup.com/journals/pages/open_access/funder_policies/chorus/standard_publication_model). This is a pre-copy-editing, author-produced version of an article accepted for publication in The Review of Financial Studies following peer review. The definitive publisher-authenticated version Tania Babina, Chotibhak Jotikasthira, Christian Lundblad, Tarun Ramadorai, Heterogeneous Taxes and Limited Risk Sharing: Evidence from Municipal Bonds, The Review of Financial Studies, Volume 34, Issue 1, January 2021, Pages 509–568 is available online at: https://doi.org/10.1093/rfs/hhaa028
This article is published and distributed under the terms of the Oxford University Press, Standard Journals Publication Model (https://academic.oup.com/journals/pages/open_access/funder_policies/chorus/standard_publication_model). This is a pre-copy-editing, author-produced version of an article accepted for publication in The Review of Financial Studies following peer review. The definitive publisher-authenticated version Tania Babina, Chotibhak Jotikasthira, Christian Lundblad, Tarun Ramadorai, Heterogeneous Taxes and Limited Risk Sharing: Evidence from Municipal Bonds, The Review of Financial Studies, Volume 34, Issue 1, January 2021, Pages 509–568 is available online at: https://doi.org/10.1093/rfs/hhaa028
Identifier
http://gateway.webofknowledge.com/gateway/Gateway.cgi?GWVersion=2&SrcApp=PARTNER_APP&SrcAuth=LinksAMR&KeyUT=WOS:000608395000012&DestLinkType=FullRecord&DestApp=ALL_WOS&UsrCustomerID=1ba7043ffcc86c417c072aa74d649202
Subjects
Social Sciences
Business, Finance
Economics
Business & Economics
CORPORATE YIELD SPREADS
PORTFOLIO CHOICE
ASSET PRICES
MARKET-SEGMENTATION
SIMPLE-MODEL
EQUILIBRIUM
LIQUIDITY
DEMAND
DEBT
US
Publication Status
Published
Date Publish Online
2020-03-11