1. A Tax-Induced Clientele for Index-Linked Corporate Bonds.
- Author
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HOCHMAN, SHALOM and PALMON, ODED
- Subjects
CORPORATE bonds ,INFLATION-indexed bonds ,ASSET management ,TAX laws ,CAPITAL gains ,TAX expenditures ,RATE of return ,CORPORATE finance ,PRICE inflation ,BUSINESS cycles ,CORPORATE tax laws - Abstract
This paper analyzes the circumstances under which tax considerations favor or disfavor the use of index-linked corporate bonds. Using a model similar to Miller's, investors' choices of assets depend on their tax preferences for interest income versus capital gains and their preferences for the timing of returns. It is concluded that the absence of index- linked bonds in the U.S. cannot be attributed solely to tax reasons. However, following the 1986 Tax Reform Act, the tax code is expected to disfavor the use of index-linked bonds. [ABSTRACT FROM AUTHOR]
- Published
- 1988
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