Tax Incentives and Household Portfolios: A Panel Data Analysis

Sule Alan and Søren Leth-Petersen

Social and Economic Dimensions of an Aging Population Research Papers from McMaster University

Abstract: This paper investigates the responsiveness of household portfolios to tax incentives by exploiting a substantial tax reform that altered after-tax returns and cost of debt for a large number of households. An extraordinary panel data set that covers two years before and after the reform is used for the analysis. Our empirical findings suggest that households reshuffle their balance sheets in the case of a partial deductibility phase-out. In particular, heavily taxed, interest-bearing assets are used to pay off mortgage debt. Furthermore, we find that taxes have a significant impact on the structure of household portfolios even after controlling for unobserved heterogeneity.

Keywords: Household portfolios; taxation; panel data; natural experiment (search for similar items in EconPapers)
JEL-codes: G11 H31 (search for similar items in EconPapers)
Pages: 35 pages
Date: 2006-10
New Economics Papers: this item is included in nep-acc, nep-pbe and nep-ure
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (13)

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Working Paper: Tax Incentives and Household Portfolios: A Panel Data Analysis (2006)
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Persistent link: https://EconPapers.repec.org/RePEc:mcm:sedapp:163

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