Working Paper: CEPR ID: DP2787
Authors: Tullio Jappelli; Luigi Pistaferri
Abstract: The theoretical literature suggests that taxation can have a large impact on household portfolio selection and allocation. In this Paper we consider the tax treatment of life insurance, considering the cancellation of tax incentives in Italian life insurance contracts for investors with high marginal tax rates and the introduction of incentives for those with low rates. Using repeated cross-sectional data from 1989 to 1998, we find that the tax reforms had no effect on the decision to invest in life insurance or the amount invested. The likely explanations are the lack of information and lack of commitment to long-term investment.
Keywords: portfolio choice; saving; tax incentives
JEL Codes: D91; H20
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Cancellation of tax advantages for high-income households (H31) | Demand for life insurance (G52) |
| Introduction of incentives for low-income households (H53) | Demand for life insurance (G52) |
| Lack of information (D89) | Insensitivity to tax incentives (H29) |
| Commitment to long-term investments (G31) | Insensitivity to tax incentives (H29) |
| Minimum investment requirements (G11) | Insensitivity to tax incentives (H29) |
| Marketing strategies of insurance companies (G22) | Insensitivity to tax incentives (H29) |