Tax Incentives and Household Portfolios: A Panel Data Analysis
AbstractThis 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.
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Bibliographic InfoPaper provided by McMaster University in its series Social and Economic Dimensions of an Aging Population Research Papers with number 163.
Length: 35 pages
Date of creation: Oct 2006
Date of revision:
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Household portfolios; taxation; panel data; natural experiment;
Other versions of this item:
- Sule Alan & Søren Leth-Petersen, 2006. "Tax Incentives and Household Portfolios: A Panel Data Analysis," CAM Working Papers 2006-13, University of Copenhagen. Department of Economics. Centre for Applied Microeconometrics.
- 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-2006-11-25 (Accounting & Auditing)
- NEP-ALL-2006-11-25 (All new papers)
- NEP-PBE-2006-11-25 (Public Economics)
- NEP-URE-2006-11-25 (Urban & Real Estate Economics)
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