Oliver Pfäuti and Edson Wu model firms that face uncertainty about both marginal costs and fiscal policy and choose how much information to acquire before setting prices. Higher debt raises steady-state taxes, which affects attention through two opposing forces.
Those taxes reduce the profit stakes of mispricing, but they make desired prices more sensitive to tax fluctuations, increasing the value of information. The interaction generates a U-shaped relationship between public debt and attention, and therefore between debt and inflation volatility.
Using euro-area firm-level expectations data, the authors document that the passthrough of expected input-cost growth into expected selling-price growth rises systematically with a country's debt-to-GDP ratio.