DP2787 Tax Incentives and the Demand for Life Insurance: Evidence from Italy

Author(s): Tullio Jappelli, Luigi Pistaferri
Publication Date: May 2001
Keyword(s): Portfolio Choice, Saving, Tax Incentives
JEL(s): D91, H20
Programme Areas: Public Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=2787

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.