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The Impact of Inflation on the Aggregate Debt-Asset Ratio
Shalom Hochman and Oded Palmon
The Journal of Finance
Vol. 40, No. 4 (Sep., 1985), pp. 1115-1125
Stable URL: http://www.jstor.org/stable/2328397
Page Count: 11
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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.
The Journal of Finance © 1985 American Finance Association