How do Taxes Affect the Trading Behavior of Private Investors? Evidence from Individual Portfolio Data

83 Pages Posted: 14 Oct 2020

See all articles by Florian Buhlmann

Florian Buhlmann

ZEW – Leibniz Centre for European Economic Research

Philipp Dörrenberg

University of Mannheim; IZA Institute of Labor Economics; CESifo (Center for Economic Studies and Ifo Institute); ZEW – Leibniz Centre for European Economic Research

Johannes Voget

University of Mannheim - Accounting and Taxation

Benjamin Loos

Technische Universität München (TUM) - TUM School of Management

Multiple version iconThere are 2 versions of this paper

Date Written: 2020

Abstract

We exploit a large reform of capital-gains taxation in Germany combined with portfolio-level daily panel data to study the causal effect of taxes on individual stock-trading behavior and the disposition effect. We find substantial spikes in selling probabilities around an intertemporal tax discontinuity, and no such spikes after the abolishment of the discontinuity. Using difference-in-bunching methods, nonparametric regressions and effective tax rates, we quantify the tax effect and identify interesting patterns of heterogeneity. We further find evidence that the wellestablished disposition effect is strongly affected by the tax discontinuity through tax motivated selling of both gains and losses.

Keywords: Taxation, Capital-gains, Private investors, Trading Behavior, Disposition Effect

JEL Classification: H20, C41, D14, G11

Suggested Citation

Buhlmann, Florian and Dörrenberg, Philipp and Voget, Johannes and Loos, Benjamin, How do Taxes Affect the Trading Behavior of Private Investors? Evidence from Individual Portfolio Data (2020). ZEW - Centre for European Economic Research Discussion Paper No. 20-047, Available at SSRN: https://ssrn.com/abstract=3710523 or http://dx.doi.org/10.2139/ssrn.3710523

Florian Buhlmann (Contact Author)

ZEW – Leibniz Centre for European Economic Research ( email )

P.O. Box 10 34 43
L 7,1
D-68034 Mannheim, 68034
Germany

Philipp Dörrenberg

University of Mannheim ( email )

L 7, 3-5
Mannheim, 68161
Germany

IZA Institute of Labor Economics ( email )

P.O. Box 7240
Bonn, D-53072
Germany

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

Munich
Germany

ZEW – Leibniz Centre for European Economic Research ( email )

P.O. Box 10 34 43
L 7,1
D-68034 Mannheim, 68034
Germany

Johannes Voget

University of Mannheim - Accounting and Taxation ( email )

Mannheim, 68131
Germany

Benjamin Loos

Technische Universität München (TUM) - TUM School of Management ( email )

Arcisstr. 21
Munich, D-80290
Germany

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