Assume you face a progressive tax rate system. Show that it does not pay for you to reduce your explicit tax rate on fully taxable income to below the implicit tax rate on tax-exempt securities. Under...

Assume you face a progressive tax rate system. Show that it does not pay for you to reduce your explicit tax rate on fully taxable income to below the implicit tax rate on tax-exempt securities. Under what conditions would you choose not to engage in clientele-based arbitrage when your marginal tax rate exceeds the implicit tax rate on tax-exempt securities, even absent restrictions on the deductibility of interest on loans?