Working Paper: CEPR ID: DP14096
Authors: Harry Huizinga; Maximilian Todtenhaupt; Johannes Voget; Wolf Wagner
Abstract: This paper examines the impact of capital income taxation on the composition of foreign portfolio investment. Studying bilateral portfolio positions among a sample of 37 countries over the period 2001-2015, we find that capital gains and dividend taxation reduce the share of equities in foreign investments, while interest taxation increases this share. The results suggest that domestic capital income taxation affects the worldwide asset allocation of domestic investors. The estimated tax sensitivities imply a significant increase in country’s external wealth following a tax policy change that stimulates investors to hold higher-yielding equity investments.
Keywords: Asset Allocation; Capital Income Taxation; Foreign Portfolio Investment
JEL Codes: G11; H24
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| capital gains tax rate (H24) | share of equities in foreign investments (F21) |
| dividend tax rate (G35) | share of equities in foreign investments (F21) |
| interest tax rate (H20) | share of equities in foreign investments (F21) |
| differential taxation of equity (H29) | share of equities in foreign investments (F21) |