In Canada, the leakage from TEBs would likely be exacerbated by the importance in the bond market of foreign and pension fund investors. This is because these investors are not subject to Canadian income tax, or at least only after deferral in the case of pensions. Thus, there would be less overall appetite to hold these bonds than a higher-yielding non-TEB debt instrument.
And, as if sizeable benefit-leakage isn't enough to discourage the use of TEBs, these debt instruments also lack accountability. Tax-exempt bonds provide benefits to one specific group of society (the local citizens of the city issuing the TEB) but tap the entire population for the costs, through lower state and federal revenues. Put simply, TEBs compel nonresidents to finance the infrastructure of others.