and numerous seminar participants. Suárez Serrato is grateful for funding from the Kauffman Foundation. All errors remain our own. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research. NBER working papers are circulated for discussion and comment purposes. They have not been peer-reviewed or been subject to the review by the NBER Board of Directors that accompanies official NBER publications.
We study the interaction between tax advantages for municipal bonds and the market structure of auctions for these bonds. We show that this interaction can limit a bidder’s ability to extract information rents and is a crucial determinant of state and local governments’ borrowing costs. Reduced-form estimates show that increasing the tax advantage by 3 pp lowers mean borrowing costs by 9-10%. We estimate a structural auction model to measure markups and to illustrate and quantify how the interaction between tax policy and bidder strategic behavior determines the impact of tax advantages on municipal borrowing costs. We use the estimated model to evaluate the efficiency of Obama and Trump administration policies that limit the tax advantage for municipal bonds. Because reductions in the tax advantage inflate bidder markups and depress competition, the resulting increase in municipal borrowing costs more than offsets the tax savings to the government. Finally, we use the model to analyze a recent non-tax regulation that affects entry into municipal bond auctions.
This paper presents an estimation procedure for sparse signals in adaptive setting. We show that when the pure signal is strong enough, the value of loss function is asymptotically the same as for an optimal estimator up to a constant multiplier.
This paper presents an estimation procedure for sparse signals in adaptive setting. We show that when the pure signal is strong enough, the value of loss function is asymptotically the same as for an optimal estimator up to a constant multiplier.
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