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Pecking order theory for government finance

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

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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.

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