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A Tax‐Induced Clientele for Index‐Linked Corporate Bonds
Author(s) -
HOCHMAN SHALOM,
PALMON ODED
Publication year - 1988
Publication title -
the journal of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 18.151
H-Index - 299
eISSN - 1540-6261
pISSN - 0022-1082
DOI - 10.1111/j.1540-6261.1988.tb03968.x
Subject(s) - index (typography) , bond , monetary economics , tax credit , economics , indirect tax , ad valorem tax , tax reform , state income tax , double taxation , value added tax , business , public economics , finance , world wide web , computer science
This paper analyzes the circumstances under which tax considerations favor or disfavor the use of index‐linked corporate bonds. Using a model similar to Miller's, investors' choices of assets depend on their tax preferences for interest income versus capital gains and their preferences for the timing of returns. It is concluded that the absence of index‐linked bonds in the U.S. cannot be attributed solely to tax reasons. However, following the 1986 Tax Reform Act, the tax code is expected to disfavor the use of index‐linked bonds.