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YIELD STRUCTURE OF TAXABLE VS. NONTAXABLE BONDS
Author(s) -
Kim Moon,
Booth Geoffrey
Publication year - 1985
Publication title -
journal of financial research
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.319
H-Index - 49
eISSN - 1475-6803
pISSN - 0270-2592
DOI - 10.1111/j.1475-6803.1985.tb00391.x
Subject(s) - taxable income , yield (engineering) , economics , bond , tax rate , monetary economics , debt , corporate tax , financial economics , tax reform , public economics , macroeconomics , accounting , finance , tax avoidance , thermodynamics , physics
In his 1976 presidential address to the American Finance Association, Miller shows that the equilibrium marginal personal tax rate on riskless bond income is equal to the marginal corporate tax rate. In the presence of risk, he and, subsequently, others suggest that the theoretical equilibrium occurs when the personal tax rate is less than the corporate tax rate. This study investigates empirically these relationships by examining the yield ratio of nontaxable to taxable debt at various risk levels. Both the riskless and risk propositions are confirmed.