<p>Identifying the effect of differential taxation on portfolio allocation requires exogenous variation in marginal tax rates. Marginal tax rates vary with income, but income surely affects portfolio choice directly. In systems of individual taxation, like Canada's, couples with the same household income can face different effective tax rates on capital income when labor income is distributed differently within households. Using this source of variation we find portfolio responses to taxation among more affluent households. The estimated effects are statistically significant but economically modest. In a "placebo" test, using data from the U.S. (which has joint taxation), we find no effect of the intra-household distribution of labor income on portfolios.</p>
Authors
Thomas F. Crossley
Research Fellow University of Michigan
Tom is a Research Fellow at IFS, a Research Professor for the Institute for Social Research at the University of Michigan.
Sule Alan
Sung-Hee Jeon
Kadir Atalay
Journal article details
- Publisher
- Elsevier
- Issue
- December 2010
Suggested citation
Alan, S et al. (2010). 'New evidence on taxes and portfolio choice' (2010)
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