Are There Tax Effects in the Relative Pricing of U.S. Government Bonds?

Richard C. Green · Bernt Arne Ødegaard

90 citations0/0 files storedThe Journal of Finance

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Financial Markets and Investment Strategies Economic and Fiscal Studies Credit Risk and Financial Regulations

Abstract

ABSTRACT 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.

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1985A Theory of the Term Structure of Interest Rates 1987Parsimonious Modeling of Yield Curves 1975THE TAX‐ADJUSTED YIELD CURVE 1971Measuring the Term Structure of Interest Rates 2016Handbook of Fixed‐Income Securities 1994Exploiting the Conditional Density in Estimating the Term Structure: An Application to the Cox, Ingersoll, and Ross Model 1984Optimal stock trading with personal taxes 1986The Empirical Implications of the Cox, Ingersoll, Ross Theory of the Term Structure of Interest Rates

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