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    do tax exemptions mask cost of borrowing

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    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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    https://brainmass.com/business/interest-rates/do-tax-exemptions-mask-cost-of-borrowing-18084

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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 ........

    $2.49

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