Why is the coupon rate on a municipal bond lower than on a corporate bond of similar quality?

1. Municipal bonds are attractive because the interest earned on them is exempt from federal income tax. 2. An investor keeps more of each dollar of municipal interest than of corporate interest, which is fully taxable. 3. Investors will therefore accept a lower stated rate, so the coupon on a municipal bond is lower than on a similar-quality corporate bond. 4. Interest on municipal bonds issued within the taxpayer's home state is exempt from that state's income tax as well, which sharpens the advantage further. _Source: OpenStax Introduction to Business (CC BY 4.0), Ch 16 "Understanding Financial Management and Securities Markets", section 16.6 Securities Markets_