00928nam a22001097a 4500008004100000022001400041245007900055260003700134300001800171440005500189500057400244190323b        xxu||||| |||| 00| 0 eng d  a0304-405X  aTax distortions and bond issue pricing / by Mattia LandonicMattia Landoni  aAmsterdambElseviercAugust 2018  aPages 382-393  aJournal of Financial Economicsv129 (2)x0304-405X  aAbstract
Original issue premium (OIP) bonds are the norm in the US tax-exempt market but very rare in the taxable market. A tax subsidy helps explain this disparity. Unlike bonds issued at par or discount, the price of OIP bonds can fall and yet remain above par, providing secondary market buyers with more tax-exempt coupon and less taxable market discount gain. The subsidy for OIP bonds explains additional, previously undocumented empirical facts. In a calibration exercise, the subsidy’s expected cost to the U.S. Treasury is estimated at $1.7 billion per year.