Abstract
This paper exploits the tax rate variation generated by the Economic Growth and Tax Reconciliation Act of 2001 (which reduced ordinary income tax rates) and the Jobs and Growth Tax Relief Reconciliation Act of 2003 (which reduced capital gains and dividend tax rates) to estimate the effect of taxes on financial portfolio allocations. Using data from the 1998 and 2007 Survey of Consumer Finances samples, I examine changes to household financial portfolio allocations across six asset classes. I find limited evidence of households responses to the tax reductions. There is weak evidence that increase in the tax advantage of equities relative to interest income caused households to shift portfolios towards taxable equities. There is also evidence that households shelter their more heavily taxed assets in retirement accounts.
Published Version
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