“HAS THE DARBY‐FELDSTEIN EFFECT BEEN CONFIRMED?:” A COMMENT

In an earlier paper published in this journal, Michael Bond and Gerald Smolen (1986) set out to test for the presence of the Darby‐Feldstein effect. They regressed the nominal rate of taxable long‐term securities on the nominal yield of long‐term tax exempt municipal securities. They conclude that the parameter for the explanatory variable, which is significantly greater than one, serves as proof of the Darby‐Feldstein effect. In addition, the authors maintain that this approach yields the prospects of an inverted Fisher condition irrelevant.