Working Paper: NBER ID: w17522
Authors: Kristian Rydqvist; Joshua Spizman; Ilya A. Strebulaev
Abstract: Since World War II, direct stock ownership by households across the globe has largely been replaced by indirect stock ownership by financial institutions. We argue that tax policy is the driving force. Using long time-series from eight countries, we show that the fraction of household ownership decreases with measures of the tax benefits of holding stocks inside tax-deferred plans. This finding is important for policy considerations on effective taxation and for financial economics research on the long-term effects of taxation on corporate finance and asset prices.
Keywords: tax policy; financial assets; stock ownership; households; financial institutions
JEL Codes: G10; G20; H22; H30
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Higher effective income taxes on households (H31) | Preference for tax-deferred savings (D15) |
| Preference for tax-deferred savings (D15) | Decline in direct stock ownership by households (G59) |
| Higher effective income taxes on households (H31) | Decline in direct stock ownership by households (G59) |
| Increase in tax benefits for tax-deferred accounts (H20) | Reduction in direct stock ownership (G34) |
| Introduction of defined contribution plans (H55) | Shift of stock ownership from households to intermediaries (G23) |
| Government policies affecting effective tax rate (H32) | Reallocation of financial assets to institutional investors (G23) |