Biased Effects of Taxes and Subsidies on Portfolio Choices

Posted: 14 May 2014

See all articles by Hagen Ackermann

Hagen Ackermann

Otto-von-Guericke-Universität Magdeburg

Martin Fochmann

Free University of Berlin; University of Cologne

Benedikt Mihm

Otto-von-Guericke-Universität Magdeburg

Date Written: March 12, 2013

Abstract

We study how taxes and subsidies affect portfolio choices in a laboratory experiment. We find highly significant differences after intervention, even though the net income is identical in all our treatments and thus the decision pattern of investors should be constant. In particular, we observe that the willingness to invest in the risky asset decreases markedly when an income tax has to be paid or when a subsidy is paid. We investigate this result further in a range of variations of the baseline experiment and find our main result to be largely robust. However, as we reduce the number of states of nature the bias weakens considerably.

Keywords: Tax perception, Risk-taking behavior, Portfolio choice, Distorting taxation, Behavioral economics

JEL Classification: C91, D14, H24

Suggested Citation

Ackermann, Hagen and Fochmann, Martin and Mihm, Benedikt, Biased Effects of Taxes and Subsidies on Portfolio Choices (March 12, 2013). Economics Letters, Vol. 120, 2013. Available at SSRN: https://ssrn.com/abstract=2435940

Hagen Ackermann

Otto-von-Guericke-Universität Magdeburg ( email )

Universitätspl. 2
PSF 4120
Magdeburg, D-39106
Germany

Martin Fochmann (Contact Author)

Free University of Berlin ( email )

Thielallee 73
Accounting and Taxation
Berlin, 14195
Germany

University of Cologne ( email )

Albertus-Magnus-Platz
Behavioral Accounting/Taxation/Finance
Cologne, 50923
Germany

HOME PAGE: http://www.taxation.uni-koeln.de/de/team/prof-dr-martin-fochmann/

Benedikt Mihm

Otto-von-Guericke-Universität Magdeburg ( email )

Universitätspl. 2
PSF 4120
Magdeburg, D-39106
Germany

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