The Impact of Inflation on the Aggregate Debt‐Asset Ratio

  • Author(s): SHALOM HOCHMAN, ODED PALMON
  • Published: Apr 30, 2012
  • Pages: 1115-1125
  • DOI: 10.1111/j.1540-6261.1985.tb02366.x

ABSTRACT

This paper demonstrates that, contrary to the results of previous studies, the impact of inflation on the aggregate debt‐asset ratio cannot be determined theoretically. However, it is shown that inflation is likely to increase this ratio when personal income tax schedules are indexed to the price level and/or when leverage‐related costs are relatively high and the personal tax rate on income from holding common stocks is relatively low.

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