overview of how taxation affects household portfolio structure. It begins by outlining six aspects of portfolio behavior that may be influenced by the tax system. These are asset selection, asset allocation, borrowing, asset location in taxable and tax-deferred accounts, asset turnover, and whether to hold assets directly or through financial intermediaries. The analysis considers how ignoring tax considerations may bias estimates of how other variables, such as income or net worth, affect the structure of household portfolios. The paper then describes the tax rules that apply to various portfolio instruments in a range of major industrialized nations. This illustrates the wide variation in the potential impact of tax rules on portfolio choice. Finally, the paper selectively reviews the existing evidence on how taxation affects portfolio choice. A small but growing literature, primarily based on the analysis of U.S. data, suggests that taxes have important effects on several aspects of portfolio choice. There remain a number of decisions, however, for which it appears difficult to reconcile household choices with tax-efficient behavior.
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