How do Taxes Affect the Trading Behavior of Private Investors? Evidence from Individual Portfolio Data
83 Pages Posted: 14 Oct 2020
Date Written: 2020
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: Suggested Citation