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The Evolution of Aggregate Stock Ownership---A Unified Explanation

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  • Rydqvist, Kristian
  • Spizman, Joshua
  • Strebulaev, Ilya

Abstract

Since World War II, direct stock ownership by households has largely been replaced by indirect stock ownership by financial institutions. We argue that tax policy is the driving force. Using long time-series from eight countries, we show that the fraction of household ownership decreases with measures of the tax benefits of holding stocks inside a pension plan. This finding is important for policy considerations on effective taxation and for financial economics research on the long-term effects of taxation on corporate finance and asset prices.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 7356.

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Date of creation: Jul 2009
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Handle: RePEc:cpr:ceprdp:7356

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Keywords: Bracket creep; capital gains tax; Income tax; Inflation; Pension funds; stock ownership;

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References

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  1. Valery Polkovnichenko, 2005. "Household Portfolio Diversification: A Case for Rank-Dependent Preferences," Review of Financial Studies, Society for Financial Studies, vol. 18(4), pages 1467-1502.
  2. Eugene Fama & F. & Kenneth R. French, . "The Equity Premium."," CRSP working papers 522, Center for Research in Security Prices, Graduate School of Business, University of Chicago.
  3. J. B. Chay & Dosoung Choi & Jeffrey Pontiff, 2006. "Market Valuation of Tax-Timing Options: Evidence from Capital Gains Distributions," Journal of Finance, American Finance Association, vol. 61(2), pages 837-865, 04.
  4. Raj Chetty & Emmanuel Saez, 2005. "Dividend Taxes and Corporate Behavior: Evidence from the 2003 Dividend Tax Cut," The Quarterly Journal of Economics, MIT Press, vol. 120(3), pages 791-833, August.
  5. Richard Green & Burton Hollifield, 2000. "The Personal Tax Advantage of Equity," Econometric Society World Congress 2000 Contributed Papers 1611, Econometric Society.
  6. Lakonishok, Josef & Vermaelen, Theo, 1983. " Tax Reform and Ex-Dividend Day Behavior," Journal of Finance, American Finance Association, vol. 38(4), pages 1157-79, September.
  7. Ishi, Hiromitsu, 2001. "The Japanese Tax System," OUP Catalogue, Oxford University Press, edition 3, number 9780199242566, September.
  8. Miller, Merton H, 1977. "Debt and Taxes," Journal of Finance, American Finance Association, vol. 32(2), pages 261-75, May.
  9. Clemens Sialm, 2009. "Tax Changes and Asset Pricing," American Economic Review, American Economic Association, vol. 99(4), pages 1356-83, September.
  10. Kenneth R. French, 2008. "Presidential Address: The Cost of Active Investing," Journal of Finance, American Finance Association, vol. 63(4), pages 1537-1573, 08.
  11. Julian Franks & Colin Mayer & Hannes Wagner, 2006. "The Origins of the German Corporation - Finance, Ownership and Control," Review of Finance, European Finance Association, vol. 10(4), pages 537-585, December.
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Cited by:
  1. Magnus Henrekson & Tino Sanandaji, 2011. "Entrepreneurship and the theory of taxation," Small Business Economics, Springer, vol. 37(2), pages 167-185, September.
  2. Greenwood, Robin & Thesmar, David, 2011. "Stock price fragility," Journal of Financial Economics, Elsevier, vol. 102(3), pages 471-490.
  3. Henrekson, Magnus & Stenkula, Mikael, 2009. "Entrepreneurship and Public Policy," Working Paper Series 804, Research Institute of Industrial Economics.
  4. Henrekson, Magnus & Johansson, Dan & Stenkula, Mikael, 2010. "Taxation, Labor Market Policy and High-Impact Entrepreneurship," Working Paper Series 826, Research Institute of Industrial Economics.

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