Debt maturity
Subtitle: is long-term debt optimal?
By: Laura Alfaro, Fabio Kanczuk
Series: Working paper / Division of Research, Harvard Business School -- 06-005; Working paper (Harvard Business School. Division of Research) -- 06-005
Publisher: Division of Research, Harvard Business School
Published: 2005
Place of publication: Boston
Language: eng
Number of pages: 35
Description: We model and calibrate the arguments in favor and against short-term and long-term debt. These arguments broadly include: maturity-term premium, tax smoothing, and sustainability (roll-over risk). We use a dynamic equilibrium model with tax distortion, government outlays uncertainty and model maturity as the fraction of debt that needs to be rolled over ever period. In the model, the benefits of defaulting are tempered by higher future interest rates. We obtain that the calibrated costs from defaulting on long-term debt more than offset costs associated with short-term debt. Therefore, short-term debt implies in higher welfare levels.
Notes: "August 2005 "--Added t.p.

Includes bibliographical references.