Portfolio Substitution and the Revenue Cost of the Federal Income Tax Exemption for State and Local Government Bonds
Name
Poterba_Portfolio substitution.pdf
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168.24 KB
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Adobe PDF
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Author(s)
Poterba, James M.
Ramírez Verdugo, Arturo
Date Issued
June 2011
Journal
National Tax Journal
Publisher
National Tax Association-Tax Institute of America
Citation
Ramírez Verdugo, Arturo and James M. Poterba. "Portfolio Substitution and the Revenue Cost of the Federal Income Tax Exemption for State and Local Government Bonds." National Tax Journal, 64, 591-613 (June 2011).
Version
Author's final manuscript
Abstract
This paper illustrates how different assumptions about household portfolio behavior influence estimates of the amount of individual income tax revenue that would be collected if the interest tax exemption for state and local government bonds was repealed or scaled back. Using data from the 2004 Survey of Consumer Finances, we estimate that federal income tax revenues would rise by $14.0 billion if current bondholders purchased taxable bonds, $8.9 billion if corporate stock replaced tax-exempt bonds in household portfolios, and $8.2 billion if they distributed their tax-exempt bond holdings across their other portfolio assets in proportion to their current portfolio shares.
MIT Department
Massachusetts Institute of Technology. Department of Economics
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Creative Commons Attribution-Noncommercial-Share Alike 3.0
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