This paper derives a new and intuitive estimation procedure for the term structure under potential tax arbitrage. No a priori assumptions regarding the equality of the prices and present values of bonds are made. The data are employed to determine whether this equality holds, and an appropriate estimator is thereby endogenously derived. The suggested estimator is based on the optimizing behavior of an investor in a market with frictions, and emerges directly from the solution of the dual of the no-arbitrage optimization problem. In addition, the proposed estimator benefits from being both theoretically sound and straightforward to apply.

This paper develops a geometric methodology with which to analyze the no-arbitrage condition, with special reference to tax arbitrage in government bonds. Using this methodology, it is shown that a country's bond-issuing authority might be able to painlessly avoid market equilibria which is likely to induce tax arbitrage activities. The simple bond-issuing policy which will achieve this goal is identified, and its limitations are discussed. An examination of the Canadian and Israeli bond markets shows that adopting the prescribed bond-issuing policy does not meaningfully impinge on the bond-issuing authority's ability to sell bonds.

"In this paper we question the pioneering work of Todaro, which states that rural-to-urban labor migration in less developed countries (LDCs) is an individual response to a higher urban expected income. We demonstrate that rural-to-urban labor migration is perfectly rational even if urban expected income is lower than rural income. We achieve this under a set of fairly stringent conditions: an individual decision-making entity, a one-period planning horizon, and global risk aversion. We obtain the result that a small chance of reaping a high reward is sufficient to trigger rural-to-urban labor migration."