Advertisement

Tax Effects in the Dutch Bond Market

  • G. H. M. J. Kremer
Conference paper
Part of the Studies in Financial Modelling book series (FINANC.MODELL.)

Abstract

In this paper an analysis of the Dutch bond market is made. The technique used is linear programming. Given the fact that coupon income and capital gains are taxed differently and that some investors are tax-exempt in the Netherlands, it is shown that there are overpriced bonds in the market. This is as can be expected. But it is found that there are bonds that a rational investor would never hold in his portpolio, whatever the tax rate the investor has to pay on coupon income. Given the fact that the Dutch bond market is very illiquid for some bonds, an analysis of the effects of bid-ask spreads is made. It is shown that the effect of these spreads cannot explain the existence of bonds that are overpriced. It is not clear where these remaining overpricings stem from.

Keywords

Cash Flow Term Structure Pension Fund Capital Gain Bond Price 
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.

Preview

Unable to display preview. Download preview PDF.

Unable to display preview. Download preview PDF.

References

  1. G.M. Costantinides and J.E. Ingersoll, 1984: Optimal Bond Trading with Pcrsonal Taxes, The Journal of Finance 299-335.Google Scholar
  2. C.D. Dermody and E.Z. Prisman, 1988: Term Structure Multiplicity & Clientele in Markets with Transaction Costs & Taxes, The Journal of Finance 893-911.Google Scholar
  3. J.V. Jordan, 1984: Tax Effects in Term Structure Estimantion, The Journal of Finance 393-406.Google Scholar
  4. R.H. Lrrzenberger and J. Rolfo, 1984: Arbitrage Pricing, Transaction Costs and Taxation of Capital Gains, Journal of Financial Economics 337-351.Google Scholar
  5. R.H. Litzenberger and J. Rolfo, 1984: An International Study of Tax Effects on Government Bonds, The Journal of Finance 1-22.Google Scholar
  6. S.M. Schaefer, 1981: Measuring a Tax-Specific Term Structure of Interest Rates in the Market for British Government Securities, The Economic Journal 415-438.Google Scholar
  7. S.M. Schaefer, 1982a: Tax-Induced Clientele Effects in the Market for British Government Securities, Journal of Financial Economics 121-159.Google Scholar
  8. S. M. Schaefer, 1982b: Taxes and Security Market Equilibrium, in W.F. Sharpe en C.M. Cootner (eds), Financial Economics: Essays in Honour of Paul Cootner, Englewood Cliffs, NJ: Prentice Hall 159–177.Google Scholar

Copyright information

© Springer-Verlag Berlin · Heidelberg 1991

Authors and Affiliations

  • G. H. M. J. Kremer
    • 1
  1. 1.Erasmus University RotterdamThe Netherlands

Personalised recommendations