Differential Income Taxation and Household Asset Allocation

Richard Ochmann

No 1058, Discussion Papers of DIW Berlin from DIW Berlin, German Institute for Economic Research

Abstract: This paper empirically investigates the effects of differential income taxation on households' portfolio choice and asset allocation applying a two-stage budgeting model of asset demand to German survey data. The model is structured into the discrete asset choice and the continuous asset choice, and the marginal income tax rate is simulated in a module of income taxation. Households that face relatively higher tax rates are found to have relatively greater demand for tax-privileged assets than households in the lower tax brackets. The higher the marginal tax rate the greater demand is for non-owner-occupied housing, for mortgage repayments, for building society deposits, for stocks, for insurances, and for consumer credits, whereas demand is lower for owner-occupied housing, bank deposits, and bonds.

Keywords: Household asset allocation; portfolio choice; two-stage budgeting; capital income taxation (search for similar items in EconPapers)
JEL-codes: C35 G11 H31 (search for similar items in EconPapers)
Pages: 75 p.
Date: 2010
New Economics Papers: this item is included in nep-acc, nep-pub and nep-ure
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Citations: View citations in EconPapers (5)

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