Title: The Pricing of Tax-Exempt Bonds and the Miller Hypothesis.
Authors: TRZCINKA, CHARLES
Abstract: This paper reports a new test of two competing theories of the relation between tax exempt and taxable interest rates. The Miller hypothesis predicts that the tax-exempt rate is 52 percent of the taxable rate, while the institutional demand hypothesis predicts a volatile relationship. The tests in this paper employ a random intercept model to control for the risk of average interest rates. The results favor the Miller hypothesis. Marginal tax rates are found to be close to Miller's predicted 48 percent. The relationship is not influenced by relative demand or supply and the marginal tax rate appears stable over time.
Subjects: TAX exemption; INTEREST rates; TAXATION; INTEREST rate risk; SUPPLY & demand; TAX assessment; INVESTMENT interest; TAX-exempt securities; CORPORATE taxes; MATHEMATICAL models
Publication: Journal of Finance (Wiley-Blackwell), 1982, Vol 37, Issue 4, p907
ISSN: 0022-1082
Publication type: Academic Journal
DOI: 10.1111/j.1540-6261.1982.tb03588.x

The Pricing of Tax-Exempt Bonds and the Miller Hypothesis.

TRZCINKA, CHARLES