The interest income earned on most municipal bonds in the United States is tax exempt.Thus,for such municipalities

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Since the interest income earned on most municipal bonds is tax exempt, the cost of borrowing for municipalities is lower. As a result, the user cost of capital is lower than it would be otherwise. Option A is incorrect because municipalities can still invest in public projects even with tax-exempt financing. Option B is incorrect because while tax revenues may be higher, it is not primarily due to tax exemptions on municipal bonds but rather other revenue sources.

The Interest Income Earned on Most Municipal Bonds in the United