Tax Incentives, Bequest Motives, and the Demand for Life Insurance: Evidence from Two Natural Experiments in Germany

42 Pages Posted: 9 May 2010

See all articles by Nicolas Sauter

Nicolas Sauter

European Central Bank (ECB)

Jan Walliser

Congressional Budget Office

Joachim K. Winter

Ludwig Maximilian University of Munich (LMU); CESifo (Center for Economic Studies and Ifo Institute); Max Planck Society for the Advancement of the Sciences - Munich Center for the Economics of Aging (MEA); Deutsche Bundesbank - Research Department

Date Written: April 2010

Abstract

Whole life insurance plays an important role in household saving. However, empirical evidence on its determinants is scarce. This paper studies two natural experiments to identify the effects of tax incentives and bequest motives on life-insurance demand. An unanticipated tax reform in 2000 halved the tax exemption limit for capital income in Germany. We document that the demand for life insurance reacted strongly to this change. With regard to bequest motives, we analyze the demand for life insurance in the former German Democratic Republic (GDR). Relative to market-based economies, the socialist GDR can be viewed as an experimental institutional setting where life-insurance demand was not influenced by tax considerations which allows us to isolate bequest motives while controlling for life-cycle and precautionary motives. We find a significantly higher ownership probability among households with children and a high regard for the family, confirming bequest motives in life-insurance demand.

Keywords: savings, life insurance, capital income taxation, bequests

JEL Classification: D91, C25, D14, G11

Suggested Citation

Sauter, Nicolas and Walliser, Jan and Winter, Joachim K., Tax Incentives, Bequest Motives, and the Demand for Life Insurance: Evidence from Two Natural Experiments in Germany (April 2010). CESifo Working Paper Series No. 3040, Available at SSRN: https://ssrn.com/abstract=1601185

Nicolas Sauter

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Jan Walliser

Congressional Budget Office ( email )

Ford House Office Building
2nd & D Streets SW
Washington, DC 20515
United States

Joachim K. Winter (Contact Author)

Ludwig Maximilian University of Munich (LMU) ( email )

Geschwister-Scholl-Platz 1
Munich, DE Bavaria 80539
Germany

CESifo (Center for Economic Studies and Ifo Institute) ( email )

Poschinger Str. 5
Munich, DE-81679
Germany

Max Planck Society for the Advancement of the Sciences - Munich Center for the Economics of Aging (MEA) ( email )

Amalienstrasse 33
Munich, 80799
Germany

Deutsche Bundesbank - Research Department ( email )

PO Box 10 06 02
D60006 Frankfurt
Germany

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