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Differential income taxation and household asset allocation

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  • Richard Ochmann

Abstract

This article 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 and the continuous asset choice. Cross-sectional variation in marginal tax rates, appropriately instrumented, as well as over-time variation from a major tax reform are used to identify the tax effects. Households with higher tax rates are found to have relatively greater demand for tax-privileged assets, such as nonowner-occupied housing, mortgage repayments, building society deposits, stocks, insurances and consumer credits, than households with lower tax rates. Demand at higher tax rates is lower for owner-occupied housing, bank deposits and bonds.

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File URL: http://hdl.handle.net/10.1080/00036846.2013.859381
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Bibliographic Info

Article provided by Taylor & Francis Journals in its journal Applied Economics.

Volume (Year): 46 (2014)
Issue (Month): 8 (March)
Pages: 880-894

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Handle: RePEc:taf:applec:v:46:y:2014:i:8:p:880-894

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Cited by:
  1. Martin Beznoska, 2014. "Estimating a Consumer Demand System of Energy, Mobility and Leisure: A Microdata Approach for Germany," Discussion Papers of DIW Berlin 1374, DIW Berlin, German Institute for Economic Research.
  2. Richard Ochmann, 2010. "Distributional and Welfare Effects of Germany's Year 2000 Tax Reform," Discussion Papers of DIW Berlin 1083, DIW Berlin, German Institute for Economic Research.
  3. Martin Beznoska & Richard Ochmann, 2013. "The interest elasticity of household savings: a structural approach with German micro data," Empirical Economics, Springer, vol. 45(1), pages 371-399, August.

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