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Discussion Paper Details

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Title: Taxation and the External Wealth of Nations: Evidence from Bilateral Portfolio Holdings

Author(s): Harry Huizinga, Maximilian Todtenhaupt, Johannes Voget and Wolf Wagner

Publication Date: November 2019

Keyword(s): asset allocation, Capital income taxation and Foreign portfolio investment

Programme Area(s): Financial Economics

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.

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Bibliographic Reference

Huizinga, H, Todtenhaupt, M, Voget, J and Wagner, W. 2019. ' Taxation and the External Wealth of Nations: Evidence from Bilateral Portfolio Holdings'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=14096