The Tax Treatment of Government Bonds
March 1, 1997
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Summary
In their effort to finance fiscal deficits at a reasonable cost, governments compete with other users of financial capital. Governments, however, are in the unique position that they are the only debt suppliers that can determine the taxation of debt instruments they issue. Following an overview of the current tax treatment of government bonds in OECD countries, this paper argues that—on purely economic grounds—there are no reasons for exempting interest on government bonds. Administrative difficulties in capturing interest on many other debt instruments in the tax net may, however, provide a rationale for doing so.
Subject: Bonds, Capital income, Financial institutions, Income and capital gains taxes, National accounts, Personal income, Sovereign bonds, Taxes, Withholding tax
Keywords: Bonds, cost of capital, Global, government bond, Income and capital gains taxes, interest, interest deductibility, interest flow, interest from government bonds, interest income, intramarginal interest differential, investor interest, net-of-tax interest cost, nonresident interest, Personal income, Sovereign bonds, tax revenue, tax treatment, tax-exempt bond, Withholding tax, WP
Pages:
25
Volume:
1997
DOI:
Issue:
025
Series:
Working Paper No. 1997/025
Stock No:
WPIEA0251997
ISBN:
9781451844221
ISSN:
1018-5941
Notes
The paper presents the present provisions of taxation of interest from government bonds in OECD countries.
