New evidence on taxes and portfolio choice

Sule Alan (), Kadir Atalay, Thomas F. Crossley and Sung-Hee Jeon ()

No W09/11, IFS Working Papers from Institute for Fiscal Studies

Abstract:

Identifying the effect of differential taxation on portfolio allocation requires exogenous variation in marginal tax rates. Marginal tax rates vary with income, but income surely affects portfolio choice directly. In systems of individual taxation - like Canada's - couples with the same household income can face different effective tax rates on capital income when labor income is distributed differently within households. Using this source of variation we find statistically significant but economically modest responses to taxation. In a 'placebo' test, using data from the U.S. (which has joint taxation), we find no effect of the intra-household distribution of labor income on portfolios.

Keywords: Household portfolio choice; taxes (search for similar items in EconPapers)
JEL-codes: G11 H24 H31 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-pbe
Date: 2009-04
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Related works:
Journal Article: New evidence on taxes and portfolio choice (2010)
Working Paper: New Evidence on Taxes and Portfolio Choice (2009)
Working Paper: New Evidence on Taxes and Portfolio Choice (2009)
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Persistent link: http://EconPapers.repec.org/RePEc:ifs:ifsewp:09/11

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