How do taxes affect the trading behavior of private investors? Evidence from individual portfolio data

Buhlmann, Florian ; Doerrenberg, Philipp ; Voget, Johannes ; Loos, Benjamin

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URN: urn:nbn:de:bsz:180-madoc-577529
Document Type: Working paper
Year of publication: 2020
The title of a journal, publication series: ZEW Discussion Papers
Volume: 20-047
Place of publication: Mannheim
Publication language: English
Institution: Business School > ABWL insbes. Finance & Accounting (Voget)
Sonstige Einrichtungen > ZEW - Leibniz-Zentrum für Europäische Wirtschaftsforschung
Business School > ABWL u. Betriebswirtschaftliche Steuerlehre (Dörrenberg 2019-)
MADOC publication series: Veröffentlichungen des ZEW (Leibniz-Zentrum für Europäische Wirtschaftsforschung) > ZEW Discussion Papers
Subject: 330 Economics
Classification: JEL: H20 , C41 , D14 , G11,
Keywords (English): taxation , capital-gains , private investors , trading behaviord , disposition effect
Abstract: We exploit a large reform of capital-gains taxation in Germany combined with portfolio-level daily panel data to study the causal effect of taxes on individual stock-trading behavior and the disposition effect. We find substantial spikes in selling probabilities around an intertemporal tax discontinuity, and no such spikes after the abolishment of the discontinuity. Using difference-in-bunching methods, non-parametric regressions and effective tax rates, we quantify the tax effect and identify interesting patterns of heterogeneity. We further find evidence that the well-established disposition effect is strongly affected by the tax discontinuity through tax motivated selling of both gains and losses.

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