A reason why a municipality would want to issue a taxable municipal bond and thereby have to pay a higher yield (than if it issued a tax-exempt municipal bond) is because ________.

Question

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The U.S. income tax code imposes restrictions on arbitrage opportunities that a municipality can realize from its financing activities. This means that if a municipality wants to use the funds raised from issuing bonds for certain activities that are not tax-exempt, such as building a sports stadium or a convention center, it may choose to issue taxable municipal bonds and pay a higher yield to attract investors. Additionally, if the municipality wants to attract foreign investors or investors who are not subject to U.S. taxes, issuing a taxable bond may be more attractive to them.

A Reason Why a Municipality Would Want to Issue a Taxable