Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/323259 
Year of Publication: 
2024
Citation: 
[Journal:] Economic Theory [ISSN:] 1432-0479 [Volume:] 79 [Issue:] 4 [Publisher:] Springer [Place:] Berlin, Heidelberg [Year:] 2024 [Pages:] 1383-1420
Publisher: 
Springer, Berlin, Heidelberg
Abstract: 
We examine optimal credit market policies in two models with durables/capital as collateral. Pecuniary externalities rationalize ex-ante debt taxes as macroprudential regulation, achieving constrained efficiency. Ex-post debt subsidies can implement first-best by stimulating collateral demand. Due to the same effect, debt subsidies that are constant over time can be superior to debt taxes. Saving subsidies can further enhance efficiency by addressing distributive effects of pecuniary externalities via interest rate reductions. The analysis shows that debt-increasing subsidies can outperform macroprudential regulation, and that constrained inefficiency caused by collateral externalities is insufficient to establish debt taxes as optimal credit market policies.
Subjects: 
Financial stability
Pecuniary externalities
Collateral constraint
Macroprudential regulation
Distributive effects
JEL: 
E44
G18
H23
Persistent Identifier of the first edition: 
Creative Commons License: 
cc-by Logo
Document Type: 
Article
Document Version: 
Published Version

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