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

Robert L. McDonald

doi:10.1016/0047-2727(83)90038-5

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

Robert L. McDonald^*

^*Corresponding author for this work

Finance

Research output: Contribution to journal › Article › peer-review

16 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 language	English (US)
Pages (from-to)	303-325
Number of pages	23
Journal	Journal of Public Economics
Volume	22
Issue number	3
DOIs	https://doi.org/10.1016/0047-2727(83)90038-5
State	Published - Dec 1983

Funding

*I would like to thank Lawrence Summers for extremely helpful discussions. I am also grateful for comments from an anonymous referee, and from Fischer Black, Stanley Fischer, Alex Kane, Alan Marcus and participants in the B.U. finance seminar. Some of the results in this paper were obtained independently in Taggart (1982). This is based on a chapter in my M.I.T. Ph.D. dissertation. Research support from the National Science Foundation and the Federal Reserve Bank of Boston is gratefully acknowledged.

ASJC Scopus subject areas

Finance
Economics and Econometrics

Access to Document

10.1016/0047-2727(83)90038-5

Cite this

@article{7a33f1d89b0c4701933b5bdf7eaf0b0a,

title = "Government debt and private leverage. An extension of the Miller theorem",

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.",

author = "McDonald, {Robert L.}",

note = "Funding Information: *I would like to thank Lawrence Summers for extremely helpful discussions. I am also grateful for comments from an anonymous referee, and from Fischer Black, Stanley Fischer, Alex Kane, Alan Marcus and participants in the B.U. finance seminar. Some of the results in this paper were obtained independently in Taggart (1982). This is based on a chapter in my M.I.T. Ph.D. dissertation. Research support from the National Science Foundation and the Federal Reserve Bank of Boston is gratefully acknowledged.",

year = "1983",

month = dec,

doi = "10.1016/0047-2727(83)90038-5",

language = "English (US)",

volume = "22",

pages = "303--325",

journal = "Journal of Public Economics",

issn = "0047-2727",

publisher = "Elsevier B.V.",

number = "3",

}

TY - JOUR

T1 - Government debt and private leverage. An extension of the Miller theorem

AU - McDonald, Robert L.

N1 - Funding Information: *I would like to thank Lawrence Summers for extremely helpful discussions. I am also grateful for comments from an anonymous referee, and from Fischer Black, Stanley Fischer, Alex Kane, Alan Marcus and participants in the B.U. finance seminar. Some of the results in this paper were obtained independently in Taggart (1982). This is based on a chapter in my M.I.T. Ph.D. dissertation. Research support from the National Science Foundation and the Federal Reserve Bank of Boston is gratefully acknowledged.

PY - 1983/12

Y1 - 1983/12

N2 - 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.

AB - 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.

UR - http://www.scopus.com/inward/record.url?scp=0039708963&partnerID=8YFLogxK

UR - http://www.scopus.com/inward/citedby.url?scp=0039708963&partnerID=8YFLogxK

U2 - 10.1016/0047-2727(83)90038-5

DO - 10.1016/0047-2727(83)90038-5

M3 - Article

AN - SCOPUS:0039708963

SN - 0047-2727

VL - 22

SP - 303

EP - 325

JO - Journal of Public Economics

JF - Journal of Public Economics

IS - 3

ER -

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

Abstract

Funding

ASJC Scopus subject areas

Access to Document

Other files and links

Fingerprint

Cite this