TY  - JOUR
AU  - Gordon,Roger
AU  - Gaspar,Vitor
TI  - Home Bias in Portfolios and Taxation of Asset Income
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 8193
PY  - 2001
Y2  - March 2001
UR  - http://www.nber.org/papers/w8193
L1  - http://www.nber.org/papers/w8193.pdf
N1  - Author contact info:
Roger H. Gordon
Department of Economics 0508
University of California, San Diego
9500 Gilman Drive, Dept. 0508
La Jolla, CA 92093
Tel: 858/534-4828
Fax: 858/534-7040
E-Mail: rogordon@ucsd.edu

Vitor Gaspar
Banco de Portugal
Special adviser 
Av. Almirante Reis, 71 - 8
1150-012 Lisboa
Portugal
Tel: 00322-2966388
E-Mail: vitor.gaspar@ec.europa.eu
AB  - Intuitively, the observed 'home bias' in individual portfolios plausibly explains the international capital immobility in aggregate data reported by Feldstein and Horioka (1980) as well as the survival of taxes on capital income.  These intuitions are examined explicitly in a model where random consumer prices cause individuals to invest heavily in domestic equity as a hedge against these price fluctuations. Neither intuition is fully supported by the model.  While the model forecasts that extra domestic savings generate extra investment primarily in the home country, consistent with the evidence in Feldstein and Horioka, this is true regardless of whether consumer price are random and so whether portfolios have 'home bias.' In addition, while random equity returns facilitate taxes on equity income, as shown in Gordon and Varian (1989) and Huizinga and Nielsen (1997), random consumer prices appear to undermine taxes on capital income.
ER  -