Debt and Creative Destruction: Why Could Subsidizing Corporate Debt Be Optimal?
研究了补贴企业债务的社会福利收益，以及行业困境持续时间如何影响其成本与收益，解释了为何债务税收补贴在全球持续存在。
The existing theoretical literature provides little justification for a corporate debt subsidy. We illustrate the welfare benefit of this subsidy and study how the social costs and benefits change with the duration of industry distress. In our model, two firms engage in socially wasteful competition for survival in a declining industry. Firms differ on two dimensions: exogenous productivity and endogenously chosen amount of debt financing, resulting in a two-dimensional war of attrition. Debt financing increases incentives to exit, which, although costly for the firm, is socially beneficial. These benefits decline as industry distress shortens. Our normative model sheds light on why the debt tax subsidy still persists around the world. Analogously, the model can also rationalize a seemingly ad hoc feature of the U.S. tax system, which subsidizes the conflict of interest between debt and equity regarding firm liquidation. This paper was accepted by Amit Seru, finance.