Role of Tax Preferences in Financial Infrastructure

The federal government supports infrastructure investment in a variety of ways. However, the most common means of providing a tax subsidy for infrastructure investment, by offering a tax exemption for interest on state and local bonds, is generally viewed to be an inefficient way to subsidise state and local borrowing, largely because the revenue cost to the federal government may exceed the interest-cost subsidy provided to state and local governments by a substantial amount. This book assesses the role of tax preferences in infrastructure investments in the United States and discusses the types of tax preferences for state and local bonds, and it also considers how the current system of tax preference might change as a result of greater use of tax-credit bonds.