Taxation, Risk-Taking, and Household Portfolio Behavior

93 Pages Posted: 25 May 2006

See all articles by James M. Poterba

James M. Poterba

National Bureau of Economic Research (NBER); Massachusetts Institute of Technology (MIT) - Department of Economics

Date Written: June 2001

Abstract

This paper summarizes the current state of research on how taxation affects household decisions with respect to portfolio structure and asset trading. It discusses long-standing issues, such as the impact of differential taxation of income flows from stocks and bonds on the incentives for households to invest in these assets, and the effect of capital gains taxation on asset sales. It also addresses a range of emerging issues, such as the impact of taxation on the behavior of mutual funds and their investors, and the effect of tax changes and tax uncertainty on investor behavior. It concludes that taxation exerts a systematic influence on the nature of risk-taking and the structure of household portfolios. Research on the effects of taxation on portfolio structure is more advanced than work on the welfare costs of portfolio distortions.

Suggested Citation

Poterba, James M., Taxation, Risk-Taking, and Household Portfolio Behavior (June 2001). NBER Working Paper No. w8340. Available at SSRN: https://ssrn.com/abstract=273708

James M. Poterba (Contact Author)

National Bureau of Economic Research (NBER) ( email )

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Massachusetts Institute of Technology (MIT) - Department of Economics ( email )

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