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Bonds

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Bonds

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Bonds.

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Almost all state and local governments sell bonds to finance public projects and certain qualified private activities. Most of the bonds issued are tax-exempt bonds because the interest payments are not included in the bondholder's (purchaser's) federal taxable income. In contrast, Tax Credit Bonds (TCBs) are a type of bond that offers the holder a federal tax credit instead of interest. This report explains the tax credit mechanism and describes the market for the bonds.

Bonds

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Government issue of bonds indexed to the price level has long been recommended by economists, to no observed effect. Recently skepticism has been expressed about the real effects of such government action, or indeed of any government financial intermediation. This paper examines two main approaches that might argue for government issue of indexed bonds. The first asks what financial intermediation can be provided by government that the private sector cannot provide. The answer is that the government can use its taxation powers to make possible intergenerational risk sharing that private markets cannot. This argument suggests government issue of bonds indexed to wage income. The second approach discusses optimal forms of government debt issue in light of the government's ability to manipulate the payoffs on debt which has an uncertain real return. In this context indexed debt has the potential advantage of enforcing consistency in government financing and actions

Bonds.