DP14096 Taxation and the External Wealth of Nations: Evidence from Bilateral Portfolio Holdings
|Author(s):||Harry Huizinga, Maximilian Todtenhaupt, Johannes Voget, Wolf Wagner|
|Publication Date:||November 2019|
|Keyword(s):||asset allocation, Capital income taxation, Foreign portfolio investment|
|Programme Areas:||Financial Economics|
|Link to this Page:||cepr.org/active/publications/discussion_papers/dp.php?dpno=14096|
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.