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The coupon‐induced tax clientele effect in bond prices
Author(s) -
Gay Gerald D,,
Kim Seokchin
Publication year - 1991
Publication title -
managerial and decision economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.288
H-Index - 51
eISSN - 1099-1468
pISSN - 0143-6570
DOI - 10.1002/mde.4090120505
Subject(s) - coupon , treasury , economics , bond , maturity (psychological) , monetary economics , financial economics , econometrics , finance , psychology , developmental psychology , archaeology , history
A pricing model for default‐free bonds under differentia! taxation of coupon income and capital gains is presented which explicitly considers coupon‐induced tax clienteles. Subsequent analysis provides indirect evidence in support of the existence of the coupon‐induced tax clientele effect, while direct evidence is provided by analyzing differences in marginal tax rates estimated across different coupon levels for sets of US Treasury bonds with the same maturity date. The results are also generally consistent with the traditional notion that marginal tax rates are inversely related to coupon levels.