Discussion Papers, Department of Business and Management Science, Norwegian School of Economics (NHH)
Floris T. Zoutman
The Effect of Capital Taxes on Household's Portfolio Composition and Intertemporal Choice: Evidence from the Dutch 2001 Capital Income Tax Reform
Abstract: This paper estimates the effect of capital taxation on
portfolio composition and savings using quasi-experimental variation
generated by the Dutch 2001 capital tax reform. The reform drove a wedge
between the taxation of housing and financial wealth and in addition
affected the after-tax return on all assets. I use unique administrative
household panel data with information on capital income, wealth and
portfolio shares to exploit this variation. I derive and estimate a
semi-structural model which directly relates the share invested in
financial wealth to the after-tax return on financial and housing wealth.
In addition, I link accumulated wealth in the reform-period to the change
in the after-tax return on total wealth. Elasticities have the expected
sign but are modest in size. I find some evidence for heterogeneity in the
behavioral response. In particular, rich and single households seem to be
more responsive in terms of both portfolio composition and wealth
accumulation, than other households. The estimated elasticities can be used
in capital tax models to calibrate the optimal tax rate.
Keywords: Tax Reform; Capital Taxation of Households; Portfolio Composition; Intertemporal Behavior; (follow links to similar papers)
JEL-Codes: G11; G18; H24; H31; (follow links to similar papers)
33 pages, June 11, 2014
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