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do tax exemptions mask cost of borrowing

I read that some argue that the federal income tax exemption of interest on state-local debt is that it masks interest rate costs - to all sectors that borrow - of increased volume of state-local borrowing? Please explain the arguements for and an against this theory - I dont understand. thanks.

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Hello,

Sellers of federal tax-exempt debt can sell bonds (borrow) at lower than market interest rates because lenders (bond-purchasers) are willing to accept such lower interest rates. This is because there is a tax benefit to doing so -- their interest income is not taxed compared to other non-exempt borrowers (corporate bonds). Once ...

Solution Summary

Sellers of federal tax-exempt debt can sell bonds (borrow) at ........

$2.19