ABSTRACT
Assuming that the earnings of the pension fund are tax exempt, while contributions to the fund by the employer are tax deductible, and there are no transactions costs; there are two situations in which there is a tax arbitrage gain from switching the investment of a pension fund from equities to bonds. e rst situation was analyzed by Tepper (1981) (see also Bader, 2003; Frank, 2002), while the second was analyzed by Black (1980) (see also Tepper and A" eck, 1974; Surz, 1981; Black and Dewhurst, 1981; Alexander, 2002; Frank, 2002; Ralfe et al., 2003).
