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Taxation, Risk-Taking, and Household Portfolio Behavior

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  • James M. Poterba

Abstract

This paper summarizes the current state of research on how taxation affects household decisions with respect to portfolio structure and asset trading. It discusses long-standing issues, such as the impact of differential taxation of income flows from stocks and bonds on the incentives for households to invest in these assets, and the effect of capital gains taxation on asset sales. It also addresses a range of emerging issues, such as the impact of taxation on the behavior of mutual funds and their investors, and the effect of tax changes and tax uncertainty on investor behavior. It concludes that taxation exerts a systematic influence on the nature of risk-taking and the structure of household portfolios. Research on the effects of taxation on portfolio structure is more advanced than work on the welfare costs of portfolio distortions.

Suggested Citation

  • James M. Poterba, 2001. "Taxation, Risk-Taking, and Household Portfolio Behavior," NBER Working Papers 8340, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:8340 Note: AP PE
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    Cited by:

    1. Richard Ochmann, 2016. "Distributional and welfare effects of Germany’s year 2000 tax reform: the context of savings and portfolio choice," Empirical Economics, Springer, pages 93-123.
    2. Mitchell, Olivia S. & Piggott, John, 2004. "Unlocking housing equity in Japan," Journal of the Japanese and International Economies, Elsevier, vol. 18(4), pages 466-505, December.
    3. Jonathan Gruber & Amalie Jensen & Henrik Kleven, 2017. "Do People Respond to the Mortage Interest Deduction? Quasi-Experimental Evidence from Denmark," NBER Working Papers 23600, National Bureau of Economic Research, Inc.
    4. Zoran Ivković & James Poterba & Scott Weisbenner, 2005. "Tax-Motivated Trading by Individual Investors," American Economic Review, American Economic Association, vol. 95(5), pages 1605-1630, December.
    5. Poterba, James M. & Samwick, Andrew A., 2003. "Taxation and household portfolio composition: US evidence from the 1980s and 1990s," Journal of Public Economics, Elsevier, pages 5-38.
    6. Amromin, Gene & Huang, Jennifer & Sialm, Clemens, 2007. "The tradeoff between mortgage prepayments and tax-deferred retirement savings," Journal of Public Economics, Elsevier, pages 2014-2040.
    7. Jacob, Martin, 2011. "Tax Regimes and Capital Gains Realizations," Working Paper Series, Center for Fiscal Studies 2011:9, Uppsala University, Department of Economics.
    8. Börsch-Supan, Axel & Reil-Held, Anette & Wilke, Christina, 2007. "Zur Sozialversicherungsfreiheit der Entgeltumwandlung," Sonderforschungsbereich 504 Publications 07-12, Sonderforschungsbereich 504, Universität Mannheim;Sonderforschungsbereich 504, University of Mannheim.
    9. Norman Schurhoff, 2004. "Capital gains taxes, irreversible investment, and capital structure," 2004 Meeting Papers 592b, Society for Economic Dynamics.
    10. Richard Ochmann, 2014. "Differential income taxation and household asset allocation," Applied Economics, Taylor & Francis Journals, vol. 46(8), pages 880-894, March.
    11. Zhou, Jie, 2009. "The asset location puzzle: Taxes matter," Journal of Economic Dynamics and Control, Elsevier, vol. 33(4), pages 955-969, April.
    12. Levaggi, Rosella & Menoncin, Francesco, 2016. "Optimal dynamic tax evasion: A portfolio approach," Journal of Economic Behavior & Organization, Elsevier, vol. 124(C), pages 115-129.
    13. Bergstresser, Daniel & Poterba, James, 2002. "Do after-tax returns affect mutual fund inflows?," Journal of Financial Economics, Elsevier, vol. 63(3), pages 381-414, March.
    14. Ellen R. McGrattan & Edward C. Prescott, 2005. "Taxes, Regulations, and the Value of U.S. and U.K. Corporations," Review of Economic Studies, Oxford University Press, vol. 72(3), pages 767-796.
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    16. Sims, Theodore S., 2015. "Income taxation, wealth effects, and uncertainty: Portfolio adjustments with isoelastic utility and discrete probability," Economics Letters, Elsevier, vol. 135(C), pages 52-54.
    17. Henrekson, Magnus & Sanandaji, Tino, 2016. "Owner-Level Taxes and Business Activity," Foundations and Trends(R) in Entrepreneurship, now publishers, vol. 12(1), pages 1-94, March.
    18. Alan, Sule & Atalay, Kadir & Crossley, Thomas F. & Jeon, Sung-Hee, 2010. "New evidence on taxes and portfolio choice," Journal of Public Economics, Elsevier, pages 813-823.
    19. Andrew Ang & Vineer Bhansali & Yuhang Xing, 2010. "Taxes on Tax-Exempt Bonds," Journal of Finance, American Finance Association, vol. 65(2), pages 565-601, April.
    20. Marc Rapp & Bernhard Schwetzler, "undated". "Asset Prices in the Presence of a Tax Authority," German Working Papers in Law and Economics 2006-1-1167, Berkeley Electronic Press.
    21. Gentry, William M. & Hubbard, R. Glenn, 2004. "The effects of progressive income taxation on job turnover," Journal of Public Economics, Elsevier, pages 2301-2322.
    22. repec:eee:jfinec:v:126:y:2017:i:3:p:689-712 is not listed on IDEAS
    23. Jacob, Martin, 2014. "Cross-base tax elasticity of capital gains," arqus Discussion Papers in Quantitative Tax Research 169, arqus - Arbeitskreis Quantitative Steuerlehre.

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    JEL classification:

    • H2 - Public Economics - - Taxation, Subsidies, and Revenue
    • G1 - Financial Economics - - General Financial Markets

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