Home Bias in Portfolios and Taxation of Asset Income

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Home Bias in Portfolios and Taxation of Asset Income

Author Info

Roger Gordon (University of California, San Diego)
Vitor Gaspar (European Central Bank)

Additional information is available for the following registered author(s):

Roger H. Gordon

Abstract

Intuitively, the observed "home bias" in individual portfolios plausibly explains the international capital immobility reported by Feldstein and Horioka (1980) as well as the survival of taxes on capital income. These intuitions are examined in a model where consumers prefer to consume domestically produced goods. The results show that international capital immobility is indeed present in the model: extra domestic savings generate extra investment primarily in the home country. When monetary policy focuses on exchange rate stabilization random domestic prices cause individuals to heavily invest in domestic equity as a hedge against price fluctuations. However our findings show that the specialization of equity portfolios does not necessarily facilitate the taxation of capital income. While random equity returns do facilitate taxes on equity income, as shown in Gordon and Varian (1989) and Huizinga and Nielsen (1997), random consumer prices appear to undermine taxes on capital income.

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Article provided by Berkeley Electronic Press in its journal Advances in Economic Analysis & Policy.

Volume (Year): 1 (2001)
Issue (Month): advances/1/1 ()
Pages: 1001-1001
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Paper
- Roger Gordon & Vitor Gaspar, 2001. "Home Bias in Portfolios and Taxation of Asset Income," NBER Working Papers 8193, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)

Find related papers by JEL classification:
G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

Maurice Obstfeld & Kenneth Rogoff, 2000. "The Six Major Puzzles in International Macroeconomics: Is There a Common Cause?," NBER Working Papers 7777, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
Other versions:
- Maurice Obstfeld & Kenneth Rogoff, 2001. "The Six Major Puzzles in International Macroeconomics: Is There a Common Cause?," International Trade 0012003, EconWPA. [Downloadable!]
- Maurice Obstfeld and Kenneth Rogoff., 2000. "The Six Major Puzzles in International Macroeconomics: Is There a Common Cause?," Center for International and Development Economics Research (CIDER) Working Papers C00-112, University of California at Berkeley. [Downloadable!]
- Maurice Obstfeld & Kenneth Rogoff, 2006. "The Six Major Puzzles in International Macroeconomics: Is There a Common Cause?," Center for International and Development Economics Research, Working Paper Series 1010, Center for International and Development Economics Research, Institute for Business and Economic Research, UC Berkeley. [Downloadable!]
Fratzscher, M., 2001. "Financial Market Integration in Europe: On the Effects of EMU on Stock Markets," Papers 48, Quebec a Montreal - Recherche en gestion.
Other versions:
- Marcel Fratzscher, 2001. "Financial market integration in Europe: on the effects of EMU on stock markets," Working Paper Series 48, European Central Bank. [Downloadable!]
- Fratzscher, Marcel, 2002. "Financial Market Integration in Europe: On the Effects of EMU on Stock Markets," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 7(3), pages 165-93, July. [Downloadable!] (restricted)
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Baxter, Marianne & Jermann, Urban J, 1997. "The International Diversification Puzzle Is Worse Than You Think," American Economic Review, American Economic Association, vol. 87(1), pages 170-80, March. [Downloadable!] (restricted)
Other versions:
- Marianne Baxter & Urban J. Jermann, 1995. "The International Diversification Puzzle is Worse Than You Think," NBER Working Papers 5019, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
- Baxter, M. & Jermann, U.J., 1993. "The International Diversification Puzzle is Worse than you Think," RCER Working Papers 350, University of Rochester - Center for Economic Research (RCER).
Gordon, Roger H & Bovenberg, A Lans, 1996. "Why Is Capital So Immobile Internationally? Possible Explanations and Implications for Capital Income Taxation," American Economic Review, American Economic Association, vol. 86(5), pages 1057-75, December. [Downloadable!] (restricted)
Other versions:
- Roger H. Gordon & A. Lans Bovenberg, 1994. "Why is Capital so Immobile Internationally?: Possible Explanations and Implications for Capital Income Taxation," NBER Working Papers 4796, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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Cooper, Ian & Kaplanis, Evi, 1994. "Home Bias in Equity Portfolios, Inflation Hedging, and International Capital Market Equilibrium," Review of Financial Studies, Oxford University Press for Society for Financial Studies, vol. 7(1), pages 45-60. [Downloadable!] (restricted)
Olivier de Bandt & Philipp Hartmann, 2000. "Systemic risk: a survey," Working Paper Series 35, European Central Bank. [Downloadable!]
Other versions:
- de Bandt, Olivier & Hartmann, Philipp, 2000. "Systemic Risk: A Survey," CEPR Discussion Papers 2634, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
Adler, Michael & Dumas, Bernard, 1983. " International Portfolio Choice and Corporation Finance: A Synthesis," Journal of Finance, American Finance Association, vol. 38(3), pages 925-84, June. [Downloadable!] (restricted)
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Gordon, Roger H. & Varian, Hal R., 1989. "Taxation of asset income in the presence of a world securities market," Journal of International Economics, Elsevier, vol. 26(3-4), pages 205-226, May. [Downloadable!] (restricted)
Other versions:
- Roger H. Gordon & Hal R. Varian, 1986. "Taxation of Asset Income in the Presence of a World Securites Market," NBER Working Papers 1994, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
Kang, Jun-Koo & Stulz, Rene M., 1997. "Why is there a home bias? An analysis of foreign portfolio equity ownership in Japan," Journal of Financial Economics, Elsevier, vol. 46(1), pages 3-28, October. [Downloadable!] (restricted)
Other versions:
- Jun-Koo Kang & Rene M. Stulz, 1995. "Why Is There a Home Bias? An Analysis of Foreign Portfolio Equity Ownership in Japan," NBER Working Papers 5166, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)

Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

Carsten Detken & Vítor Gaspar & Bernhard Winkler, 2005. "On Prosperity and Posterity: The Need for Fiscal Discipline in a Monetary Union," Working Papers de Economia (Economics Working Papers) 30, Departamento de Economia, Gestão e Engenharia Industrial, Universidade de Aveiro. [Downloadable!]
Other versions:
- Carsten Detken & Vítor Gaspar & Bernhard Winkler, 2004. "On prosperity and posterity: the need for fiscal discipline in a monetary union," Working Paper Series 420, European Central Bank. [Downloadable!]

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