Differential Income Taxation and Household Asset Allocation
AbstractThis paper 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 asset choice and the continuous asset choice, and the marginal income tax rate is simulated in a module of income taxation. Households that face relatively higher tax rates are found to have relatively greater demand for tax-privileged assets than households in the lower tax brackets. The higher the marginal tax rate the greater demand is for non-owner-occupied housing, for mortgage repayments, for building society deposits, for stocks, for insurances, and for consumer credits, whereas demand is lower for owner-occupied housing, bank deposits, and bonds.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by DIW Berlin, German Institute for Economic Research in its series Discussion Papers of DIW Berlin with number 1058.
Length: 75 p.
Date of creation: 2010
Date of revision:
Publication status: Published in: Applied Economics 46 (2014) No.8, 880-894
Household asset allocation; portfolio choice; two-stage budgeting; capital income taxation;
Other versions of this item:
- Richard Ochmann, 2014. "Differential income taxation and household asset allocation," Applied Economics, Taylor & Francis Journals, vol. 46(8), pages 880-894, March.
- C35 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Discrete Regression and Qualitative Choice Models; Discrete Regressors; Proportions
- G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
- H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household
This paper has been announced in the following NEP Reports:
- NEP-ACC-2010-09-25 (Accounting & Auditing)
- NEP-ALL-2010-09-25 (All new papers)
- NEP-PUB-2010-09-25 (Public Finance)
- NEP-URE-2010-09-25 (Urban & Real Estate Economics)
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.:
- David L. Edgerton, 1997. "Weak Separability and the Estimation of Elasticities in Multistage Demand Systems," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 79(1), pages 62-79.
- Feldstein, Martin S, 1976. "Personal Taxation and Portfolio Composition: An Econometric Analysis," Econometrica, Econometric Society, vol. 44(4), pages 631-50, July.
- William N. Goetzmann & Alok Kumar, 2004.
"Equity Portfolio Diversification,"
Yale School of Management Working Papers
ysm17, Yale School of Management.
- Uhler, R S & Cragg, John G, 1971. "The Structure of the Asset Portfolios of Households," Review of Economic Studies, Wiley Blackwell, vol. 38(115), pages 341-57, July.
- J. Scott Shonkwiler & Steven T. Yen, 1999. "Two-Step Estimation of a Censored System of Equations," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 81(4), pages 972-982.
- Hochgürtel, S. & Soest, A.H.O. van, 2001.
"The relation between financial and housing wealth: Evidence from Dutch households,"
Open Access publications from Tilburg University
urn:nbn:nl:ui:12-86790, Tilburg University.
- Hochguertel, Stefan & van Soest, Arthur, 2001. "The Relation between Financial and Housing Wealth: Evidence from Dutch Households," Journal of Urban Economics, Elsevier, vol. 49(2), pages 374-403, March.
- John Heaton & Deborah Lucas, 2000. "Portfolio Choice and Asset Prices: The Importance of Entrepreneurial Risk," Journal of Finance, American Finance Association, vol. 55(3), pages 1163-1198, 06.
- Corneo, Giacomo & Keese, Matthias & Schröder, Carsten, 2008. "Can governments boost voluntary retirement savings via tax incentives and subsidies? A German case study for low-income households," Economics Working Papers 2008,18, Christian-Albrechts-University of Kiel, Department of Economics.
- James M. Poterba, 2001.
"Taxation, Risk-Taking, and Household Portfolio Behavior,"
NBER Working Papers
8340, National Bureau of Economic Research, Inc.
- Poterba, James M., 2002. "Taxation, risk-taking, and household portfolio behavior," Handbook of Public Economics, in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 3, chapter 17, pages 1109-1171 Elsevier.
- Grimes, Arthur & Wong, Alfred Y-T. & Meads, Chris S., 1994. "A note on the correct specification of financial portfolio AIDS models," European Economic Review, Elsevier, vol. 38(5), pages 1171-1174, May.
- Heien, Dale & Wessells, Cathy Roheim, 1990. "Demand Systems Estimation with Microdata: A Censored Regression Approach," Journal of Business & Economic Statistics, American Statistical Association, vol. 8(3), pages 365-71, July.
- Alain Carpentier & Hervé Guyomard, 2001. "Unconditional Elasticities in Two-Stage Demand Systems: An Approximate Solution," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 83(1), pages 222-229.
- Perraudin, William R. M. & Sorensen, Bent E., 2000. "The demand for risky assets: Sample selection and household portfolios," Journal of Econometrics, Elsevier, vol. 97(1), pages 117-144, July.
- Zietz, Joachim & Weichert, Ronald, 1988.
"A dynamic singular equation system of asset demand,"
European Economic Review,
Elsevier, vol. 32(6), pages 1349-1357, July.
- Zietz, Joachim & Weichert, Ronald, 1986. "A dynamic singular equation system of asset demand," Kiel Working Papers 256, Kiel Institute for the World Economy.
- Guiso, Luigi & Jappelli, Tullio & Terlizzese, Daniele, 1994.
"Income Risk, Borrowing Constraints and Portfolio Choice,"
CEPR Discussion Papers
888, C.E.P.R. Discussion Papers.
- Guiso, Luigi & Jappelli, Tullio & Terlizzese, Daniele, 1996. "Income Risk, Borrowing Constraints, and Portfolio Choice," American Economic Review, American Economic Association, vol. 86(1), pages 158-72, March.
- Hubbard, Robert Glenn, 1985. "Personal Taxation, Pension Wealth, and Portfolio Composition," The Review of Economics and Statistics, MIT Press, vol. 67(1), pages 53-60, February.
- James Banks & Richard Blundell & Arthur Lewbel, 1997. "Quadratic Engel Curves And Consumer Demand," The Review of Economics and Statistics, MIT Press, vol. 79(4), pages 527-539, November.
- Axel Börsch-Supan & Anette Reil-Held & Daniel Schunk, 2006.
"Das Sparverhalten deutscher Haushalte: Erste Erfahrungen mit der Riester-Rente,"
MEA discussion paper series
06114, Munich Center for the Economics of Aging (MEA) at the Max Planck Institute for Social Law and Social Policy.
- Börsch-Supan, Axel & Reil-Held, Anette & Schunk, Daniel, 2006. "Das Sparverhalten deutscher Haushalte: Erste Erfahrungen mit der Riester-Rente," Sonderforschungsbereich 504 Publications 07-15, Sonderforschungsbereich 504, Universität Mannheim & Sonderforschungsbereich 504, University of Mannheim.
- Kevin Milligan, 2004.
"Life-Cycle Asset Accumulation and Allocation in Canada,"
NBER Working Papers
10860, National Bureau of Economic Research, Inc.
- Kevin Milligan, 2005. "Life-cycle asset accumulation and allocation in Canada," Canadian Journal of Economics, Canadian Economics Association, vol. 38(3), pages 1057-1106, August.
- Kevin Milligan, 2004. "Life-cycle Asset Accumulation and Allocation in Canada," Social and Economic Dimensions of an Aging Population Research Papers 122, McMaster University.
- Deaton, Angus S & Muellbauer, John, 1980. "An Almost Ideal Demand System," American Economic Review, American Economic Association, vol. 70(3), pages 312-26, June.
- Taylor, John C. & Clements, Kenneth W., 1983. "A simple portfolio allocation model of financial wealth," European Economic Review, Elsevier, vol. 23(2), pages 241-251.
- Martin Beznoska & Richard Ochmann, 2010. "Household Savings Decision and Income Uncertainty," Discussion Papers of DIW Berlin 1046, DIW Berlin, German Institute for Economic Research.
- Louis-David L. Dicks-Mireaux & Mervyn A. King, 1983. "Portfolio Composition and Pension Wealth: An Econometric Study," NBER Chapters, in: Financial Aspects of the United States Pension System, pages 399-440 National Bureau of Economic Research, Inc.
- Dubin, Jeffrey A & McFadden, Daniel L, 1984. "An Econometric Analysis of Residential Electric Appliance Holdings and Consumption," Econometrica, Econometric Society, vol. 52(2), pages 345-62, March.
- William C. Brainard & James Tobin, 1968. "Pitfalls in Financial Model-Building," Cowles Foundation Discussion Papers 244, Cowles Foundation for Research in Economics, Yale University.
- Browning, Martin & Meghir, Costas, 1991. "The Effects of Male and Female Labor Supply on Commodity Demands," Econometrica, Econometric Society, vol. 59(4), pages 925-51, July.
- Haliassos, Michael & Bertaut, Carol C, 1995. "Why Do So Few Hold Stocks?," Economic Journal, Royal Economic Society, vol. 105(432), pages 1110-29, September.
- Sandmo, Agnar, 1977. "Portfolio Theory, Asset Demand and Taxation: Comparative Statics with Many Assets," Review of Economic Studies, Wiley Blackwell, vol. 44(2), pages 369-79, June.
- Mathias Sommer, 2005. "Trends in German households’ portfolio behavior - assessing the importance of age- and cohort-effects," MEA discussion paper series 05082, Munich Center for the Economics of Aging (MEA) at the Max Planck Institute for Social Law and Social Policy.
- Hochguertel, Stefan & Alessie, Rob & van Soest, Arthur, 1997. " Saving Accounts versus Stocks and Bonds in Household Portfolio Allocation," Scandinavian Journal of Economics, Wiley Blackwell, vol. 99(1), pages 81-97, March.
- 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.
- Ochmann, Richard, 2011. "Distributional and Welfare Effects of Germany's Year 2000 Tax Reform," Annual Conference 2011 (Frankfurt, Main): The Order of the World Economy - Lessons from the Crisis 48686, Verein für Socialpolitik / German Economic Association.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Bibliothek).
If references are entirely missing, you can add them using this form.