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Are There Tax Effects in the Relative Pricing of U.S. Government Bonds?
Author(s) -
GREEN RICHARD C.,
ØDEGAARD BERNT A.
Publication year - 1997
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.1540-6261.1997.tb04815.x
Subject(s) - treasury , tax reform , economics , monetary economics , tax credit , ad valorem tax , indirect tax , tax reform act , value added tax , tax rate , point (geometry) , bond , direct tax , statutory law , state income tax , public economics , finance , political science , law , gross income , geometry , mathematics
We investigate the impact of the Tax Reform Act of 1986 on the relative pricing of U.S. Treasury bonds. We obtain positive statistically and economically significant estimates for the implicit tax rates of a “representative” investor in the late 1970s and early 1980s. After the 1986 Tax Reform, the point estimates for the tax rate are close to zero. Tests for a regime shift associated with the 1986 Tax Reform support the hypothesis that this event largely eliminated tax effects from the term structure. We discuss both institutional and statutory explanations for this change.