IDEAS home Printed from https://ideas.repec.org/p/nbr/nberwo/17522.html
   My bibliography  Save this paper

Government Policy and Ownership of Financial Assets

Author

Listed:
  • Kristian Rydqvist
  • Joshua Spizman
  • Ilya A. Strebulaev

Abstract

Since World War II, direct stock ownership by households across the globe has largely been replaced by indirect stock ownership by financial institutions. We argue that tax policy is the driving force. Using long time-series from eight countries, we show that the fraction of household ownership decreases with measures of the tax benefits of holding stocks inside tax-deferred plans. This finding is important for policy considerations on effective taxation and for financial economics research on the long-term effects of taxation on corporate finance and asset prices.

Suggested Citation

  • Kristian Rydqvist & Joshua Spizman & Ilya A. Strebulaev, 2011. "Government Policy and Ownership of Financial Assets," NBER Working Papers 17522, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:17522
    Note: AP CF PE
    as

    Download full text from publisher

    File URL: http://www.nber.org/papers/w17522.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Bergstresser, Daniel & Poterba, James, 2004. "Asset allocation and asset location: household evidence from the survey of consumer finances," Journal of Public Economics, Elsevier, vol. 88(9-10), pages 1893-1915, August.
    2. Raj Chetty & Emmanuel Saez, 2005. "Dividend Taxes and Corporate Behavior: Evidence from the 2003 Dividend Tax Cut," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 120(3), pages 791-833.
    3. Giacomo Corneo, 2005. "The Rise and Likely Fall of the German Income Tax, 1958–2005," CESifo Economic Studies, CESifo Group, vol. 51(1), pages 159-186.
    4. Litzenberger, Robert H. & Ramaswamy, Krishna, 1979. "The effect of personal taxes and dividends on capital asset prices : Theory and empirical evidence," Journal of Financial Economics, Elsevier, vol. 7(2), pages 163-195, June.
    5. Eugene F. Fama & Kenneth R. French, 2002. "The Equity Premium," Journal of Finance, American Finance Association, vol. 57(2), pages 637-659, April.
    6. Jennifer Huang, 2008. "Taxable and Tax-Deferred Investing: A Tax-Arbitrage Approach," The Review of Financial Studies, Society for Financial Studies, vol. 21(5), pages 2173-2207, September.
    7. Poterba, James M. & Samwick, Andrew A., 2003. "Taxation and household portfolio composition: US evidence from the 1980s and 1990s," Journal of Public Economics, Elsevier, vol. 87(1), pages 5-38, January.
    8. Mehra, Rajnish & Prescott, Edward C., 1985. "The equity premium: A puzzle," Journal of Monetary Economics, Elsevier, vol. 15(2), pages 145-161, March.
    9. Alan J. Auerbach & Mervyn A. King, 1983. "Taxation, Portfolio Choice, and Debt-Equity Ratios: A General Equilibrium Model," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 98(4), pages 587-609.
    10. Brandon Julio & David L. Ikenberry, 2004. "Reappearing Dividends," Journal of Applied Corporate Finance, Morgan Stanley, vol. 16(4), pages 89-100.
    11. Clemens Sialm & Laura Starks, 2012. "Mutual Fund Tax Clienteles," Journal of Finance, American Finance Association, vol. 67(4), pages 1397-1422, August.
    12. Kenneth R. French, 2008. "Presidential Address: The Cost of Active Investing," Journal of Finance, American Finance Association, vol. 63(4), pages 1537-1573, August.
    13. Green, Richard C. & Hollifield, Burton, 2003. "The personal-tax advantages of equity," Journal of Financial Economics, Elsevier, vol. 67(2), pages 175-216, February.
    14. Clemens Sialm, 2009. "Tax Changes and Asset Pricing," American Economic Review, American Economic Association, vol. 99(4), pages 1356-1383, September.
    15. Protopapadakis, Aris, 1983. "Some Indirect Evidence on Effective Capital Gains Tax Rates," The Journal of Business, University of Chicago Press, vol. 56(2), pages 127-138, April.
    16. repec:bla:econom:v:42:y:1975:i:165:p:79-91 is not listed on IDEAS
    17. J. B. Chay & Dosoung Choi & Jeffrey Pontiff, 2006. "Market Valuation of Tax‐Timing Options: Evidence from Capital Gains Distributions," Journal of Finance, American Finance Association, vol. 61(2), pages 837-865, April.
    18. Poterba, James M. (ed.), 1994. "Public Policies and Household Saving," National Bureau of Economic Research Books, University of Chicago Press, edition 1, number 9780226676180, September.
    19. Booth, Laurence D & Johnston, David J, 1984. "The Ex-Dividend Day Behavior of Canadian Stock Prices: Tax Changes and Clientele Effects," Journal of Finance, American Finance Association, vol. 39(2), pages 457-476, June.
    20. repec:bla:jfinan:v:59:y:2004:i:3:p:999-1037 is not listed on IDEAS
    21. Lucas, Robert E, Jr, 1978. "Asset Prices in an Exchange Economy," Econometrica, Econometric Society, vol. 46(6), pages 1429-1445, November.
    22. Ishi, Hiromitsu, 2001. "The Japanese Tax System," OUP Catalogue, Oxford University Press, edition 3, number 9780199242566.
    23. Black, Fischer & Scholes, Myron, 1974. "The effects of dividend yield and dividend policy on common stock prices and returns," Journal of Financial Economics, Elsevier, vol. 1(1), pages 1-22, May.
    24. Alon Brav & John R. Graham & Campbell R. Harvey & Roni Michaely, 2008. "Managerial Response to the May 2003 Dividend Tax Cut," Financial Management, Financial Management Association International, vol. 37(4), pages 611-624, December.
    25. Ferreira, Miguel A. & Matos, Pedro, 2008. "The colors of investors' money: The role of institutional investors around the world," Journal of Financial Economics, Elsevier, vol. 88(3), pages 499-533, June.
    26. Miller, Merton H, 1977. "Debt and Taxes," Journal of Finance, American Finance Association, vol. 32(2), pages 261-275, May.
    27. Lakonishok, Josef & Vermaelen, Theo, 1983. "Tax Reform and Ex-Dividend Day Behavior," Journal of Finance, American Finance Association, vol. 38(4), pages 1157-1179, September.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Armenter, Roc & Hnatkovska, Viktoria, 2017. "Taxes and capital structure: Understanding firms’ savings," Journal of Monetary Economics, Elsevier, vol. 87(C), pages 13-33.
    2. Roc Armenter & Viktoria Hnatkovska, 2011. "The macroeconomics of firms' savings," Working Papers 12-1, Federal Reserve Bank of Philadelphia.
    3. Edquist, Harald & Henrekson, Magnus, 2013. "Product Market Reforms and Incentives to Innovate in Sweden," Working Paper Series 986, Research Institute of Industrial Economics.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Rydqvist, Kristian & Spizman, Joshua & Strebulaev, Ilya, 2011. "The evolution of aggregate stock ownership," CFS Working Paper Series 2011/18, Center for Financial Studies (CFS).
    2. Rydqvist, Kristian & Spizman, Joshua & Strebulaev, Ilya, 2014. "Government policy and ownership of equity securities," Journal of Financial Economics, Elsevier, vol. 111(1), pages 70-85.
    3. Rydqvist, Kristian & Spizman, Joshua & Strebulaev, Ilya, 2009. "The Evolution of Aggregate Stock Ownership - A Unified Explanation," SIFR Research Report Series 68, Institute for Financial Research.
    4. Dahlquist, Magnus & Robertsson, Göran & Rydqvist, Kristian, 2014. "Direct evidence of dividend tax clienteles," Journal of Empirical Finance, Elsevier, vol. 28(C), pages 1-12.
    5. Clemens Sialm, 2009. "Tax Changes and Asset Pricing," American Economic Review, American Economic Association, vol. 99(4), pages 1356-1383, September.
    6. Bergstresser, Daniel & Pontiff, Jeffrey, 2013. "Investment taxation and portfolio performance," Journal of Public Economics, Elsevier, vol. 97(C), pages 245-257.
    7. Dahlquist, Magnus & Robertsson, Göran & Rydqvist, Kristian, 2007. "Direct Evidence of Dividend Tax Clienteles," SIFR Research Report Series 51, Institute for Financial Research.
    8. Rydqvist, Kristian & Dahlquist, Magnus & Robertsson, Göran, 2006. "Direct Evidence of Dividend Tax Clienteles," CEPR Discussion Papers 6005, C.E.P.R. Discussion Papers.
    9. Zhou, Jie, 2009. "The asset location puzzle: Taxes matter," Journal of Economic Dynamics and Control, Elsevier, vol. 33(4), pages 955-969, April.
    10. Clemens Sialm & Laura Starks, 2012. "Mutual Fund Tax Clienteles," Journal of Finance, American Finance Association, vol. 67(4), pages 1397-1422, August.
    11. Frankfurter, George M. & Wood, Bob Jr., 2002. "Dividend policy theories and their empirical tests," International Review of Financial Analysis, Elsevier, vol. 11(2), pages 111-138.
    12. Hanlon, Michelle & Heitzman, Shane, 2010. "A review of tax research," Journal of Accounting and Economics, Elsevier, vol. 50(2-3), pages 127-178, December.
    13. Harry Huizinga & Johannes Voget & Wolf Wagner, 2014. "International Taxation and Cross-Border Banking," American Economic Journal: Economic Policy, American Economic Association, vol. 6(2), pages 94-125, May.
    14. Huizinga, Harry & Voget, Johannes & Wagner, Wolf, 2018. "Capital gains taxation and the cost of capital: Evidence from unanticipated cross-border transfers of tax base," Journal of Financial Economics, Elsevier, vol. 129(2), pages 306-328.
    15. Laura Kawano, 2014. "The Dividend Clientele Hypothesis: Evidence from the 2003 Tax Act," American Economic Journal: Economic Policy, American Economic Association, vol. 6(1), pages 114-136, February.
    16. Philip Brown & Alex Clarke, 1993. "The Ex-Dividend Day Behaviour of Australian Share Prices Before and After Dividend Imputation," Australian Journal of Management, Australian School of Business, vol. 18(1), pages 1-40, June.
    17. Booth, Laurence & Zhou, Jun, 2017. "Dividend policy: A selective review of results from around the world," Global Finance Journal, Elsevier, vol. 34(C), pages 1-15.
    18. Tania Babina & Chotibhak Jotikasthira & Christian Lundblad & Tarun Ramadorai, 2021. "Heterogeneous Taxes and Limited Risk Sharing: Evidence from Municipal Bonds [The distribution of realized stock return volatility]," The Review of Financial Studies, Society for Financial Studies, vol. 34(1), pages 509-568.
    19. Clemens Sialm, 2005. "Tax Changes and Asset Pricing: Time-Series Evidence," NBER Working Papers 11756, National Bureau of Economic Research, Inc.
    20. Sialm, Clemens, 2006. "Stochastic taxation and asset pricing in dynamic general equilibrium," Journal of Economic Dynamics and Control, Elsevier, vol. 30(3), pages 511-540, March.

    More about this item

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • H22 - Public Economics - - Taxation, Subsidies, and Revenue - - - Incidence
    • H30 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - General

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:17522. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: the person in charge (email available below). General contact details of provider: https://edirc.repec.org/data/nberrus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.