Everything else the same, the higher the marginal tax rate of an investor, the more likely the investor is to invest in municipal bonds as opposed to similarly rated corporate bonds.

Question

Quizplus · Accepted Answer

Municipal bonds are often exempt from federal income taxes, and sometimes from state and local taxes as well, making them more attractive to investors in higher tax brackets because the after-tax return on municipal bonds increases as the investor's marginal tax rate increases, compared to taxable bonds like corporate bonds.

Everything Else the Same, the Higher the Marginal Tax Rate