Pecking order theory for government finance

Miglo, Anton (2004): Pecking order theory for government finance.

Abstract

In this article we argue that asymmetric information can explain why seignorage is an inferior choice to debt for governments. We also argue that the Ricardian equivalence for governments is very similar to what the Modigliani-Miller proposition is for corporations. Our model is based on Bolton and Huang (2018) in that money for governments is similar to what equity is for corporations. In contrast to their model, our model considers rational economic agents.

• Item Type: MPRA Paper
• Language: English
• Keywords: government finance, pecking order, capital structure, money, Ricardian Equivalence, Modigliani-Miller Proposition, asymmetric information
• Subjects: D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D82 - Asymmetric and Private Information ; Mechanism Design; D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D86 - Economics of Contract: Theory; E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates > E40 - General; E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E51 - Money Supply ; Credit ; Money Multipliers; E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E52 - Monetary Policy; E - Macroeconomics and Monetary Economics > E6 - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook > E63 - Comparative or Joint Analysis of Fiscal and Monetary Policy ; Stabilization ; Treasury Policy; G - Financial Economics > G3 - Corporate Finance and Governance > G32 - Financing Policy ; Financial Risk and Risk Management ; Capital and Ownership Structure ; Value of Firms ; Goodwill

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