Who Responds to Tax Reforms? Evidence from the Life Insurance Market

Carolin Hecht () and Katja Hanewald
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Carolin Hecht: FX Strategy Research, Commerzbank AG, Frankfurt am Main, Germany.

The Geneva Papers on Risk and Insurance - Issues and Practice, 2012, vol. 37, issue 1, 5-26

Abstract: We exploit the natural experiment of the 2005 income tax reform in Germany to study the effects of tax incentives on consumer behaviour in life insurance markets. Our empirical analysis of sociodemographic, economic and psychological household characteristics elicited in the German SAVE study shows that two very different consumer groups buy (endowment) life insurance before and after the tax reform. We find that education plays a central role in reactions to the modified tax environment. Our stylised characterisation of “arbitrageur” and “straggler” buyers will assist both life insurance firms and regulatory authorities in designing effective policies.

Date: 2012
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