How much of the corporate bond spread is due to personal taxes?

Liu, Sheen; Shi, Jing; Wang, Junbo; Wu, Chunchi

doi:10.1016/j.jfineco.2006.08.002

Cited by 40 publications

(18 citation statements)

References 28 publications

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“…In contrast, Green and Ødegaard (1997) and Liu et al (2007) present evidence that taxes did not have a significant impact on Treasury bond prices in the post-1986 period.…”

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confidence: 70%

“…McCallum (1973) shows that the announcement of the introduction of a capital gains tax in Canada raised bond yields, as would be expected if taxes are capitalized in bond prices. In contrast, using Canadian data for 1964-1976, Brennan and Schwartz (1979 Elton et al (2001), while Liu et al (2007) find that taxes have only a small impact on US corporate bond returns.…”

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confidence: 76%

“…The use of these matched bond pairs makes it unnecessary to estimate the entire yield curve. In contrast, most previous analyses use an empirical approach that involves joint estimation of an implied tax rate and an approximation to the yield curve (e.g., McCulloch, 1975;Jordan, 1984;Litzenberger and Rolfo, 1984a;Ehrhardt et al, 1995;Green and Ødegaard, 1997;Elton and Green, 1998;Elton et al, 2001;Liu et al, 2007). The problem with this joint estimation approach is that mis-specification of the yield curve could lead to poor estimates of the implied tax rate and the degree of tax capitalization.…”

Section: Introductionmentioning

confidence: 99%

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The capitalization of taxes in bond prices: Evidence from the market for Government of Canada bonds

Landon

2009

Journal of Banking & Finance

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in AbstractThis paper provides estimates of the extent to which corporate and personal income taxes are capitalized in bond prices. The methodology yields estimates of the degree of tax capitalization, rather than an implied tax rate. This makes it straightforward to identify the marginal investor and test for changes in tax capitalization. The empirical approach also makes it unnecessary to jointly estimate the degree of tax capitalization and the entire yield curve. Corporate taxes are found to have been fully capitalized in pre-tax Government of Canada bond yields during the period 1986-1993. Since 1994, taxes have not been capitalized in yields. These results are consistent with the existence of a marginal investor, but the identity of the marginal investor changed from a financial sector firm to a non-taxed entity in the early 1990s.JEL classification: G12 ; H2

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“…In contrast, Green and Ødegaard (1997) and Liu et al (2007) present evidence that taxes did not have a significant impact on Treasury bond prices in the post-1986 period.…”

mentioning

confidence: 70%

mentioning

confidence: 76%

Section: Introductionmentioning

confidence: 99%

See 1 more Smart Citation

The capitalization of taxes in bond prices: Evidence from the market for Government of Canada bonds

Landon

2009

Journal of Banking & Finance

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“…Similarly, a net long-term loss from the highest tax rate group is used first to reduce gain from the next-highest tax rate group and then to reduce gain from a lower tax rate group. 6 A similar assumption is made in Elton et al (2001) and Liu et al (2007). 7 We assume a = 0.5 later in empirical investigation.…”

Section: Structural Models With Exogenous Leveragementioning

confidence: 99%

“…Elton et al (2001) show that taxes can significantly affect bond prices. Liu et al (2007) incorporate personal taxes into the standard reduced-form models. Liu et al (2006) extend the Leland-Toft (1996) model to incorporate personal taxes on equity and debt in the structural model.…”

Section: Introductionmentioning

confidence: 99%