Tax Revenue Sensitivity and Bond Valuation (JMP)

• Abstract: This paper studies how municipal bond yield spreads respond to local house price changes through the property tax channel. Property tax is the largest source of revenue for local governments. In the United States, local governments show heterogeneous sensitivities of property tax revenue growth with respect to local house price growth. On average, a 1% change in local house price growth corresponds to a 0.4% change in property tax revenue growth. I show that higher sensitivity leads to an increase of 23 basis points in municipal bond yield spreads. I term this relationship as sensitivity premium. To explore the channels, I examine the level and volatility of present value of future cash flows and find that yield spreads increase during housing market downturns and when house price changes are volatile. Furthermore, sensitivity premium is explained by local policies on property assessment values, tax rates, and tax exemptions. Yield spreads increase when local governments face statutory limits on property taxation, such as assessment caps and infrequent reassessments.  Overall, this paper highlights a revenue-driven channel whereby a local government's capacity to generate property tax revenue, constrained by law and shaped by housing markets, plays a central role in the pricing of municipal bonds.

• Grants: NFA Travel Grants 2025, LBS Travel Grants 2025.

• Presentations (at Conferences): LBS Transatlantic Doctoral Conference 2025, NFA PhD Session 2025 (scheduled), FMA 2025 (scheduled).

• Presentations (at Seminars): Indiana University (x2) 2024-2025,  Yonsei University Alumni Finance Seminar 2025,  Korea-America Finance Association FIN Seminar 2025, Sungkyunkwan University (SKKU) Seoul 2025.

Strategic Liability Management: Lessons from Past Inflation

• Indiana University CIBER Award funded by a Title VI grant from the US Department of Education 2024

• New version, 2025.

• This paper: I study firm liability decisions through the learning-from-experience channel, where a manager who experienced high inflation in her lifetime strategically decreases the real value of firm liabilities. During periods of high inflation, the real value of fixed-rate liabilities is lower than that of floating-rate liabilities. A manager that learned from past inflation, acknowledging this fact, converts floating-rate to fixed-rate debts using interest rate swaps. This liability management mitigates unexpected inflation shocks and demands high returns sorted by inflation beta. Consistent with findings from survey data, a manager draws lessons from inflation experience, stretching her experience back to the distant past.

• Grants: SWFA Travel Grants 2025.

• Presentations: SGF 2025, EasternFA 2025, European Winter Meeting of the Econometric Society 2024, IU Bloomington 2022-2023.