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Institute for Financial Research SIFR Research Report Series, Institute for Financial Research

No 70:
Tax Arbitrage with Risk and Effort Aversion - Swedish Lottery Bonds 1970-1990

Kristian Rydqvist ()

Abstract: Swedish lottery bonds are valuable tax shelters before the tax reform of 1991. By trading around the coupon lottery, high-tax investors with capital gains from the stock market shift their tax liability to low-tax investors. The uncertainty of the coupon lottery and the effort of verifying the winning lottery bond numbers are a nuisance to tax traders. We investigate how the Treasury (issuer), market makers (banks), and lottery bond investors respond to those frictions.

Keywords: Tax arbitrage; Coupon lottery; Lottery number checking; Ex-dividend day; Turn-of-the-year effect; Rationing; Underpricing; (follow links to similar papers)

JEL-Codes: G12; G18; (follow links to similar papers)

31 pages, April 15, 2010

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