There are several ways in which government entities raise their capital or revenues to carry out their capital projects. A number of projects are usually too heavy financially to execute with the usual revenues accruing to a government especially capital intensive projects like infrastructural developments. Whenever the finances of a government entity become inadequate to fund such financially mega projects, one of the options normally explored to raise funds is tax exempt bonds. When this decision has been made by the government, it is publicized and investors are encouraged to purchase the bonds. The money raised from the issuing of such financial instruments is now utilized in financing such infrastructural projects for which it was raised for.

Different government entities raise tax exempt bonds to be able to carry out the various capital intensive projects which they cannot do with the normal revenues they get especially from the internally generated revenues. This tax exempt bonds are normally raised by counties, cities, states for the various projects that such entities are responsible for in their various localities. Some of the infrastructural developments that may lead a government entity or agency to issue bonds include construction of airports, seaports, roads, railways etc it may also include provision of social services like hospitals and schools. There can be other purposes for the raising of bonds other than these ones mentioned here. Most times all bonds end up boosting the financial base of the government or institution issuing it to finance a project that would not have been possible if it was going to be dependent on the usual revenue income.

Most bonds issued by any government entity are normally tax exempt bonds. They are tax exempted because the government does not require the investors who purchase such bonds to pay tax on them. These usually make it more attractive to the investors and most investors are willing to accept low interest rates especially if the duration of the bond is short. The duration of bonds vary differently from bond to the issuer of such bonds. It can be as short as a few months to as long as thirty to forty years time. The duration of a bond may also depend on when the issuing institution is expecting to have a windfall of money which it can use to offset all of such liabilities they may owe their investors.

There are usually a few situations where bonds are not totally tax exempted. Tax exempt bonds are a lot of times investors delight probably because of the nil tax status conferred on them by law. However, there are a few bonds that are usually not tax exempted. Such bonds are usually stipulated by law to be taxed. The interest paid to investors who invest or purchase such bonds is usually taxable when the interest is paid to them at the end of the duration of such bonds. The tax deduction on the interest paid may however be small compared to the usual tax paid on such equivalent investments. One should careful to find out if a government issued bond they intend to invest in is taxable or not.