Home Bias in Portfolios and Taxation of Asset Income / Roger Gordon, Vitor Gaspar.

Format:

Book

Author/Creator:

Gordon, Roger.

Contributor:

National Bureau of Economic Research.

Gaspar, Vitor.

Series:

Working Paper Series (National Bureau of Economic Research) no. w8193.

NBER working paper series no. w8193

Language:

English

Subjects (All):

Capital movements.

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2001.

Cambridge, Massachussetts : National Bureau of Economic Research, [2001]

Summary:

Intuitively, the observed 'home bias' in individual portfolios plausibly explains the international capital immobility in aggregate data reported by Feldstein and Horioka (1980) as well as the survival of taxes on capital income. These intuitions are examined explicitly in a model where random consumer prices cause individuals to invest heavily in domestic equity as a hedge against these price fluctuations. Neither intuition is fully supported by the model. While the model forecasts that extra domestic savings generate extra investment primarily in the home country, consistent with the evidence in Feldstein and Horioka, this is true regardless of whether consumer price are random and so whether portfolios have 'home bias.' In addition, while random equity returns facilitate taxes on equity income, as shown in Gordon and Varian (1989) and Huizinga and Nielsen (1997), random consumer prices appear to undermine taxes on capital income.

Notes:

Print version record

March 2001.