Why the analysis below is important

1. Some states do not tax interest on municipal bonds from any state, other states do tax interest on their own bonds. How does a state's municipal tax policy influence the municipal portfolios of its residents?

States Imposing Taxes on Out-of-State Bonds: Residents favor in-state municipal bonds to optimize tax-exempt income, hence concentrating their municipal portfolios within their own states. States Exempting Out-of-State Bonds from Taxation: Investors have increased flexibility to diversify across states, thereby mitigating concentration risk. Competitive Yield Adjustments: States with advantageous tax regimes may have heightened demand for their bonds, resulting in reduced yields relative to taxable alternatives.