DP7767 Tax Arbitrage with Risk and Effort Aversion -- Swedish Lottery Bonds 1970-1990

Author(s): Kristian Rydqvist
Publication Date: March 2010
Keyword(s): ex-dividend day, lottery number checking, rationing, tax arbitrage, turn-of-the-year effect, underpricing
JEL(s): G12, G18
Programme Areas: Financial Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=7767

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.