Taxes and portfolio choice
Subtitle: evidence from JGTRRA's treatment of international dividends
By: Mihir A. Desai, Dhammika Dharmapala.
Contributors: Dharmapala, Dhammika; National Bureau of Economic Research.
Series: NBER working paper series -- no. 13281.; Working paper series (National Bureau of Economic Research) -- working paper no. 13281.
Publisher: National Bureau of Economic Research
Published: 2007
Place of publication: Cambridge, Mass
Language: eng
Number of pages: 24
Subjects: United States; Taxation -- United States; Portfolio management -- Decision making -- Econometric models
Description: This paper investigates how taxes influence portfolio choices by exploring the response to the distinctive treatment of foreign dividends in the Jobs and Growth Tax Relief Reconciliation Act (JGTRRA). JGTRRA lowered the dividend tax rate to 15% for American equities and extended this tax relief only to foreign corporations from a subset of countries. This paper uses a difference-in-difference analysis that compares US equity holdings in affected and unaffected countries. The international investment responses to JGTRRA were substantial and imply an elasticity of asset holdings with respect to taxes of -1.6. This effect cannot be explained by several potential alternative hypotheses, including differential changes to the preferences of American investors, differential changes in investment opportunities, differential time trends in investment or changed tax evasion behavior.
Notes: "July 2007."

Includes bibliographical references (p. 22-24).

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