Taxation and the External Wealth of Nations: Evidence from Bilateral Portfolio Holdings

CentER Discussion Paper Series No. 2019-029

53 Pages Posted: 11 Nov 2019

See all articles by Harry Huizinga

Harry Huizinga

Tilburg University - Center for Economic Research (CentER); Centre for Economic Policy Research (CEPR)

Maximilian Todtenhaupt

Norwegian School of Economics (NHH)

Johannes Voget

University of Mannheim - Accounting and Taxation

Wolf Wagner

Erasmus University Rotterdam (EUR) - Rotterdam School of Management (RSM); Centre for Economic Policy Research (CEPR)

Multiple version iconThere are 2 versions of this paper

Date Written: October 28, 2019

Abstract

This paper examines the impact of capital income taxation on the composition of foreign portfolio investment. Studying bilateral portfolio positions among a sample of 37 countries over the period 2001-2015, we find that capital gains and dividend taxation reduce the share of equities in foreign investments, while interest taxation increases this share. The results suggest that domestic capital income taxation affects the worldwide asset allocation of domestic investors. The estimated tax sensitivities imply a significant increase in country’s external wealth following a tax policy change that stimulates investors to hold higher-yielding equity investments.

Keywords: Asset allocation; Capital income taxation; Foreign portfolio investment

JEL Classification: G11, H24

Suggested Citation

Huizinga, Harry and Todtenhaupt, Maximilian and Voget, Johannes and Wagner, Wolf, Taxation and the External Wealth of Nations: Evidence from Bilateral Portfolio Holdings (October 28, 2019). CentER Discussion Paper Series No. 2019-029. Available at SSRN: https://ssrn.com/abstract=3476562 or http://dx.doi.org/10.2139/ssrn.3476562

Harry Huizinga (Contact Author)

Tilburg University - Center for Economic Research (CentER) ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands
+31 13 466 2623 (Phone)
+31 13 466 3042 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Maximilian Todtenhaupt

Norwegian School of Economics (NHH) ( email )

Helleveien 30
Bergen, NO-5045
Norway

HOME PAGE: http://https://sites.google.com/view/todtenhaupt

Johannes Voget

University of Mannheim - Accounting and Taxation ( email )

Mannheim, 68131
Germany

Wolf Wagner

Erasmus University Rotterdam (EUR) - Rotterdam School of Management (RSM) ( email )

P.O. Box 1738
Room T08-21
3000 DR Rotterdam, 3000 DR
Netherlands

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

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