Government debt and private leverage. An extension of the Miller theorem

Robert L. McDonald*

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

12 Scopus citations

Abstract

This paper shows how government financing decisions can influence the corporate decision to use debt or equity finance. In particular, it is shown that an increase in the stock of taxable government debt reduces the equilibrium quantity of corporate debt, and that an increase in the stock of tax-free government debt reduces the equilibrium quantity of corporate equity. The effects of inflation rate and tax rate changes are also considered.

Original languageEnglish (US)
Pages (from-to)303-325
Number of pages23
JournalJournal of Public Economics
Volume22
Issue number3
DOIs
StatePublished - Dec 1983

ASJC Scopus subject areas

  • Finance
  • Economics and Econometrics

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