THE SUPPLY ELASTICITY OF MUNICIPAL DEBT: EVIDENCE FROM BANK-QUALIFIED BONDS

Travis St Clair

doi:10.1086/727461

THE SUPPLY ELASTICITY OF MUNICIPAL DEBT: EVIDENCE FROM BANK-QUALIFIED BONDS

Research output: Contribution to journal › Article › peer-review

Abstract

This paper provides estimates of the supply elasticity of municipal debt by exploiting a dis-crete jump in interest rates created by the Tax Reform Act of 1986. To qualify for bank financing of tax-exempt debt, governments can issue no more than $10 million of nominal debt per year. Using bunching methods, I quantify the intensive margin responses to the notch for local governments. The estimates indicate that the average government lowers its borrowing by approximately 5 percent in response to an 8–17 percent increase in interest costs, imply-ing an overall price elasticity of 20.3 to 20.6.

Original language	English (US)
Pages (from-to)	111-139
Number of pages	29
Journal	National Tax Journal
Volume	77
Issue number	1
DOIs	https://doi.org/10.1086/727461
State	Published - Mar 2024

Keywords

infrastructure
municipal finance
tax-exempt debt

ASJC Scopus subject areas

Accounting
Finance
Economics and Econometrics

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10.1086/727461

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abstract = "This paper provides estimates of the supply elasticity of municipal debt by exploiting a dis-crete jump in interest rates created by the Tax Reform Act of 1986. To qualify for bank financing of tax-exempt debt, governments can issue no more than $10 million of nominal debt per year. Using bunching methods, I quantify the intensive margin responses to the notch for local governments. The estimates indicate that the average government lowers its borrowing by approximately 5 percent in response to an 8–17 percent increase in interest costs, imply-ing an overall price elasticity of 20.3 to 20.6.",

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THE SUPPLY ELASTICITY OF MUNICIPAL DEBT: EVIDENCE FROM BANK-QUALIFIED BONDS

Abstract

Keywords

ASJC Scopus subject areas

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