NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Capital Income Taxation and Risk-Taking in a Small Open Economy

Patrick K. Asea, Stephen J. Turnovsky

NBER Working Paper No. 6189
Issued in September 1997
NBER Program(s):   IFM   PE

How do capital income taxes affect household portfolio choice and growth? We" approach this question within the context of a stochastic model of a small open economy in" which taxes on income from domestic capital (equity) and foreign bonds affect household" portfolio choice, welfare and the growth rate of the economy. The theoretical and numerical" analysis demonstrates the important role that risk plays in determining the mean and variability" of growth as well as the conditions under which a higher tax rate can be welfare improving. To" shed more light on the complex theoretical interaction between taxes and risk-taking we estimate" a reduced-form multinomial probit model of household portfolio choice using the method of" simulated moments. The empirical evidence is in stark contrast to the conventional wisdom " we find that higher taxes make it less likely that the household will hold risky assets."

download in pdf format
   (1781 K)

email paper

This paper is available as PDF (1781 K) or via email.

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w6189

Published: Journal of Public Economics, Vol. 68, no. 1 (April 1998): 55-90. citation courtesy of

Users who downloaded this paper also downloaded these:
Kaplow w3709 Taxation and Risk Taking: A General Equilibrium Perspective
Klenow and Rodriguez-Clare The Neoclassical Revival in Growth Economics: Has It Gone Too Far?
Asea and Blomberg w5951 Lending Cycles
Poterba w8340 Taxation, Risk-Taking, and Household Portfolio Behavior
Obstfeld w4093 Risk-Taking, Global Diversification, and Growth
 
Publications
Activities
Meetings
NBER Videos
Data
People
About

Support
National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us