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State Taxation of Interest Income and Municipal Borrowing Costs

Lovely, Mary E. and Wasylenko, Michael J.

Abstract:

This study uses a sample of individual municipal bonds to estimate the effect of state exemption of municipal bond interest income on the yield to maturity offered by public issuers to finance their debt. A state by state comparison of interest savings to estimated revenue loss on a hypothetical $1 million serial bond suggests that aggregate savings are achieved by an exemption policy only if more than half of state debt is held by nonresidents.

Citation

Lovely, Mary E. and Wasylenko, Michael J. (1992), State Taxation of Interest Income and Municipal Borrowing Costs, National Tax Journal, 45:1, pp. 37-52