Who Responds to Tax Reforms? Evidence from the Life Insurance Market
Geneva Papers on Risk and Insurance - Issues and Practice, Vol. 37, No. 1, pp. 5-26, 2012
35 Pages Posted: 7 Jul 2010 Last revised: 11 Jan 2012
Date Written: June 22, 2011
We exploit the natural experiment of the 2005 income tax reform in Germany to study the effects of tax incentives on consumer behavior in life insurance markets. Our empirical analysis of sociodemographic, economic, and psychological household characteristics elicited in the German SAVE study shows that two very different consumer groups buy (endowment) life insurance before and after the tax reform. We find that education plays a central role in reactions to the modified tax environment. Our stylized characterization of “arbitrageur” and “straggler” buyers will assist both life insurance firms and regulatory authorities design effective policies.
Keywords: Life Insurance Demand, Tax Incentives, Financial Literacy
JEL Classification: D12, D14, D91, G22, K34
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