We argue that a higher share of the private sector in a country's external debt raises the incentive to stabilize the … exchange rate. We present a simple model in which exchange rate volatility does not affect agents' welfare if all the debt is … results support the hypothesis that not only the level, but also the composition of foreign debt matters for exchange …

tax benefit of debt (net and gross of investor taxes) and the debt ratio. A 10% increase in the net (gross) marginal tax … benefit of debt causes a 1.5% (1.6%) increase in the debt ratio, ceteris paribus. The results are robust to various … specifications like using changes in debt or debt to capital ratios. A significantly positive effect of taxes on the debt ratio can …