This paper examines the effect of inflation on the choice of government debt structure. We develop work by Missale and Blanchard (American Economic Review, vol.84 (1994), No.1, pp.309-319) to allow for the joint determination of inflation and the share of inflation –sensitive securities. We assume that governments prefer domestic nominal long-term debt. We show that the subgame perfect equilibrium involves a negative relation between inflationary expectations and the share of such debt. Panel data estimation for 15 OECD countries provides strong support for the theory.