DEFINITION of 'Private Activity Bond - PAB'

Tax-exempt bonds issued by or on behalf of local or state government for the purpose of providing special financing benefits for qualified projects. The financing is most often for projects of a private user, and the government generally does not pledge its credit.

BREAKING DOWN 'Private Activity Bond - PAB'

These bonds are used to attract private investment for projects that have some public benefit. (There are strict rules as to which projects qualify.) This type of a bond results in reduced financing costs because of the exception of federal tax.

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