Taxation and Household Portfolio Composition: U.S. Evidence from the 1980s and 1990s / James M. Poterba, Andrew Samwick.

Format:

Book

Author/Creator:

Poterba, James M.

Contributor:

National Bureau of Economic Research.

Samwick, Andrew.

Series:

Working Paper Series (National Bureau of Economic Research) no. w7392.

NBER working paper series no. w7392

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Other Title:

Taxation and Household Portfolio Composition

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 1999.

Summary:

This paper explores the relationship between household marginal income tax rates, the set of assets that households own, and the portfolio shares accounted for by each of these assets. It analyzes data from the 1983, 1989, 1992, and 1995 Surveys of Consumer Finances and develops a new algorithm for imputing federal marginal tax rates to households in these surveys. The empirical findings suggest that a household's marginal tax rate has an important effect its asset allocation decisions. The probability that a household owns tax-advantaged assets is strongly related to its tax rate on ordinary income. In addition, the amount of investment through tax-deferred accounts such as 401(k) plans and IRAs is an increasing function of the household's marginal tax rate. Holdings of corporate stock, which is taxed less heavily than interest bearing assets, and of tax-exempt bonds are also increasing in the household's marginal tax rate. Holdings of heavily taxed assets, such as corporate bonds and interest-bearing accounts, decline as a share of wealth as a household's marginal tax rate increases.

Notes:

Print version record

October 1999.