Differential taxation and the equilibrium structure of interest rates |
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Authors: | Walter N Torous |
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Institution: | The University of Michigan, Ann Arbor, MI 48109, USA |
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Abstract: | Equilibrium coupon bond pricing relationships given differential taxation are derived under uncertainty assuming that both corporate and municipal bonds were originally issued at par but are currently selling at a discount. The impact of differential taxation upon the term structure and coupon structure of interest rates is investigated, while the tax structure of interest rates is uniquely characterized. Differential taxation substantially alters the prevailing equilibrium structure of interest rates. |
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