The municipal puzzle : a review of the literature

• Main Author: Dwek, Julian, 1974-
• Other Authors: John C. Cox.
• Format: Others
• Language: en_US
• Published: Massachusetts Institute of Technology 2005
• Subjects: Sloan School of Management.
• Online Access: http://hdl.handle.net/1721.1/28245

Thesis (M.B.A.)--Massachusetts Institute of Technology, Sloan School of Management, 2002. === Includes bibliographical references (leaves 38-39). === Numerous papers have explored the pricing of municipal bonds relative to taxable instruments. An emerging theme of this literature is the persistently steep municipal term structure, and its incompatibility with prevailing notions of capital market equilibrium. This contradiction is known as the Municipal Puzzle. In this thesis, we critically assess the various theories advanced so far to explain the municipal puzzle. After considering the evidence, we identify the tax avoidance theory as being on balance the most likely candidate. The thesis then develops a helpful variation on the original tax avoidance view developed by Green. In addition, we propose a theoretical framework to overcome the apparent incompatibilities between the opportunity for tax avoidance and overall asset market equilibrium. === by Julian Dwek. === M.B.A.