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The Effect of Capital Taxes on Household's Portfolio Composition and Intertemporal Choice: Evidence from the Dutch 2001 Capital Income Tax Reform

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  • Zoutman, Floris T.

    (Dept. of Business and Management Science, Norwegian School of Economics)

Abstract

This paper estimates the effect of capital taxation on portfolio composition and savings using quasi-experimental variation generated by the Dutch 2001 capital tax reform. The reform drove a wedge between the taxation of housing and financial wealth and in addition affected the after-tax return on all assets. I use unique administrative household panel data with information on capital income, wealth and portfolio shares to exploit this variation. I derive and estimate a semi-structural model which directly relates the share invested in financial wealth to the after-tax return on financial and housing wealth. In addition, I link accumulated wealth in the reform-period to the change in the after-tax return on total wealth. Elasticities have the expected sign but are modest in size. I find some evidence for heterogeneity in the behavioral response. In particular, rich and single households seem to be more responsive in terms of both portfolio composition and wealth accumulation, than other households. The estimated elasticities can be used in capital tax models to calibrate the optimal tax rate.

Suggested Citation

  • Zoutman, Floris T., 2014. "The Effect of Capital Taxes on Household's Portfolio Composition and Intertemporal Choice: Evidence from the Dutch 2001 Capital Income Tax Reform," Discussion Papers 2014/23, Norwegian School of Economics, Department of Business and Management Science.
    • Handle: RePEc:hhs:nhhfms:2014_023
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    File URL: http://hdl.handle.net/11250/217630
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    References listed on IDEAS

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    Cited by:

    1. Dirk Schindler, 2017. "Wealth Taxation, Non-listed Firms, and the Risk of Entrepreneurial Investment," CESifo Working Paper Series 6537, CESifo.
    2. Bjørneby, Marie & Markussen, Simen & Røed, Knut, 2020. "Does the Wealth Tax Kill Jobs?," IZA Discussion Papers 13766, Institute of Labor Economics (IZA).
    3. Marius Brülhart & Jonathan Gruber & Matthias Krapf & Kurt Schmidheiny, 2016. "Taxing Wealth: Evidence from Switzerland," CESifo Working Paper Series 5966, CESifo.
    4. Matthias Krapf, 2018. "The Joint Distribution of Wealth and Income Risk: Evidence from Bern," CESifo Working Paper Series 7130, CESifo.
    5. Marius Brülhart & Jonathan Gruber & Matthias Krapf & Kurt Schmidheiny, 2022. "Behavioral Responses to Wealth Taxes: Evidence from Switzerland," American Economic Journal: Economic Policy, American Economic Association, vol. 14(4), pages 111-150, November.
    6. Katrine Jakobsen & Kristian Jakobsen & Henrik Kleven & Gabriel Zucman, 2020. "Wealth Taxation and Wealth Accumulation: Theory and Evidence From Denmark," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 135(1), pages 329-388.
    7. Glogowsky, Ulrich, 2021. "Behavioral responses to inheritance and gift taxation: Evidence from Germany," Journal of Public Economics, Elsevier, vol. 193(C).

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    More about this item

    Keywords

    Tax Reform; Capital Taxation of Households; Portfolio Composition; Intertemporal Behavior;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
    • H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household

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