scholarly journals An empirical analysis of the impact of federal budget deficits on long-term nominal interest rate yields, 1973.2–1995.4, using alternative expected inflation measures

1998 ◽  
Vol 7 (1) ◽  
pp. 55-64 ◽  
Author(s):  
Richard J. Cebula
Keyword(s):  
Interest Rate ◽  
Empirical Analysis ◽  
Federal Budget ◽  
Nominal Interest Rate ◽  
Budget Deficits ◽  
Expected Inflation ◽  
The Impact

Impact of federal income tax rates and government borrowing on nominal interest rate yields on tax-free municipal bonds

2018 ◽  
Vol 10 (3) ◽  
pp. 342-350 ◽  
Author(s):  
Richard Cebula ◽  
Usha Nair-Reichert
Keyword(s):  
Interest Rate ◽  
Income Tax ◽  
Federal Budget ◽  
Nominal Interest Rate ◽  
Tax Rates ◽  
Budget Deficits ◽  
Content Type ◽  
Federal Income Tax ◽  
The Impact ◽  
Increasing Function

Purpose This study investigates the impact of federal income tax rates and budget deficits on the nominal interest rate yield on high-grade municipal tax-free bonds (municipals) in the US. The 58-year study period covers the years 1959 through 2016 and thus is very recent. Design/methodology/approach The study develops a loanable funds model that allows for various financial market factors. Once developed, the model is estimated by autoregressive two-stage least squares, with a Newey-West heteroskedasticity correction. Findings The nominal interest rate yield on municipals is a decreasing function of the maximum marginal federal personal income tax rate and an increasing function of the federal budget deficit (expressed as a per cent of GDP). This yield is also an increasing function of nominal interest rate yields on three- and ten-year treasury notes and expected inflation. Research limitations/implications When introducing additional interest rates such as treasury bills as explanatory variables, multi-collinearity becomes a serious problem. Practical implications This study indicates that lower maximum federal personal income tax rates and larger federal budget deficits, both act to raise borrowing costs for cities (of all sizes), counties and states across the country. Given the study period of 58 years, these relationships appear to be enduring ones that responsible policy-makers should not overlook. Social implications Tax reform and debt management need to be conducted in a very circumspect fashion. Originality/value No recent study investigating the impact of the two key policy variables in this study has been published.

Determinants of Inflation in Vietnam: A VECM Approach

2015 ◽  
Vol 22 (04) ◽  
pp. 26-50
Author(s):  
Ngoc Tran Thi Bich ◽  
Huong Pham Hoang Cam
Keyword(s):  
Interest Rate ◽  
Crude Oil ◽  
Error Correction ◽  
Budget Deficit ◽  
Oil Prices ◽  
Crude Oil Prices ◽  
Domestic Credit ◽  
Short Run ◽  
The Impact

This paper aims to examine the main determinants of inflation in Vietnam during the period from 2002Q1 to 2013Q2. The cointegration theory and the Vector Error Correction Model (VECM) approach are used to examine the impact of domestic credit, interest rate, budget deficit, and crude oil prices on inflation in both long and short terms. The results show that while there are long-term relations among inflation and the others, such factors as oil prices, domestic credit, and interest rate, in the short run, have no impact on fluctuations of inflation. Particularly, the budget deficit itself actually has a short-run impact, but its level is fundamentally weak. The cause of the current inflation is mainly due to public's expectations of the inflation in the last period. Although the error correction, from the long-run relationship, has affected inflation in the short run, the coefficient is small and insignificant. In other words, it means that the speed of the adjustment is very low or near zero. This also implies that once the relationship among inflation, domestic credit, interest rate, budget deficit, and crude oil prices deviate from the long-term trend, it will take the economy a lot of time to return to the equilibrium state.

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