Institutional Affiliation: Protego
|Portfolio Substitution and the Revenue Cost of Exempting State and Local Government Interest Payments from Federal Income Tax |
with : w14439
This paper explores how alternative assumptions about household portfolio behavior affect estimates of the revenue cost of excluding state and local government interest payments from the federal income tax base. Standard tax expenditure estimates assume that current holders of tax-exempt bonds would replace their holdings of tax-exempt bonds with taxable bonds if the tax exemption were eliminated. We consider a number of alternative possible portfolio responses. Because taxable bonds are among the most heavily taxed assets, assuming that investors holding tax-exempt bonds would otherwise hold taxable bonds yields a larger estimate of the revenue cost of tax exemption than many alternative assumptions. Based on data from the 2004 Survey of Consumer Finances, we estimate that the revenue...
Published: 108. "Portfolio Substitution and the Revenue Cost of the Federal Income Tax Exemption for State and Local Government Bonds," National Tax Journal 64 (2011), number 2 (part 2), 591-614. (with A. Ramirez Verdugo)
|Portfolio Substitution and the Revenue Cost of the Federal Income Tax Exemption for State and Local Government Bonds|
in Economic Analysis of Tax Expenditures, James M. Poterba, organizer