What are tax anticipation notes primarily used for?

Tax anticipation notes are primarily used for short-term liquidity based on future tax collections. These financial instruments are issued by governments to meet immediate cash flow needs that arise before tax revenues are actually received. By borrowing against anticipated future tax revenues, municipalities can ensure they have sufficient funds to cover operational expenses while waiting for tax collections to occur.

This mechanism is particularly important for governments that experience seasonal fluctuations in cash flow, allowing them to maintain service levels and meet expenditures without disruption. Such notes are typically repaid once the expected tax revenues are collected, making them an effective tool for managing short-term financial needs without affecting long-term fiscal stability. Since they are intended for short durations and tied to specific future income, tax anticipation notes are not suitable for long-term financing or other purposes like declaring bankruptcy or funding state university initiatives.