Asymmetric taxes

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Asymmetric taxes

When participants in a transaction have different net tax rates.

Asymmetric Taxes

A situation in which two parties to a transaction pay different tax rates. This may affect what one party or the other desires about the timing, price, or other factors regarding the transaction.
References in periodicals archive ?
A (state-level) segmentation of this market emerges from asymmetric tax exemption.
This asymmetric tax exemption creates an exogenous friction that segments the municipal bond market, thus offering a unique venue to evaluate the effects of market segmentation on issuers and investors.
We begin our analysis by presenting a simple model illustrating how asymmetric tax exemption affects the demands and valuations in the municipal bond market.
Most studies in this area focus on the trade-off between lost revenues (from tax exemption) and additional savings (due to lower yields), without explicitly considering the distortion effects of the asymmetric tax exemption associated with market segmentation (Poterba and Verdugo, 2008).
In our theoretical discussion developed in the next section, we demonstrate that the asymmetric tax exemption at the state level creates barriers to capital flows across state borders.
Asymmetric tax exemption limits the incentive for investors to diversify regional risk.
We note that the asymmetric tax exemption of municipal bonds with respect to both state and federal taxes constitutes an additional impediment to arbitrage in the market.
In this section, we develop a simple equilibrium model of asset pricing under asymmetric tax exemption.
Next, Equation (2) reports that asymmetric tax exemption increases the average yields in the market ([P.
We note that the importance of asymmetric tax exemptions for the municipal bond market is even stronger than state tax rates suggest, given that many states allow their cities and counties to impose income taxes above and beyond the state income tax.
We observe that the yields in the asymmetric tax exemption states are lower than the yields in the symmetric tax exemption states, despite the fact that the bonds here tend to be riskier (with lower ratings and longer maturities).
This result may be jeopardized, however, if the shares are "tainted" either because they were acquired from abroad, held by a nonresident or by the Treuhandanstalt (Reunification Privatization Agency) at any time within the last 10 years, or acquired from German resident individuals if the capital gain has not been subject to tax (because of the asymmetric tax treatment that could result from a combination of capital gains not being taxed in Germany and a tax-free step-up) .

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