We consider how state income tax changes affect the demand for municipal bonds by in-state investors. A tax increase (decrease) makes investing in municipal bonds more (less) desirable, and theory predicts a change in demand by investors until the yields on municipal bonds reach a new equilibrium. Using a sample of state-specific municipal bond funds, we find states with tax decreases have net outflows in the following year of approximately 2% per percentage point drop in tax rates, while tax increases lead to inflows around 1.58%. We find that the response to tax changes is not the immediate reallocation predicted in perfect markets with no frictions.

中文翻译：

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州所得税的变化和对市政债券基金的需求

我们考虑了州所得税的变化如何影响州内投资者对市政债券的需求。增税（减税）使投资市政债券更加（减少）可取，理论预测投资者的需求会发生变化，直到市政债券的收益率达到新的平衡。使用特定州的市政债券基金样本，我们发现减税的州在第二年的净流出约为税率每下降 2%，而增税导致流入约 1.58%。我们发现，对税收变化的反应不是在没有摩擦的完美市场中预测的立即重新分配。