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Differential income taxation and household asset allocation

  • Richard Ochmann

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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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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