Abstract: It is well known that the implicit insurance provided by
labor income taxes can reduce total saving. We show that this
insurance can change the composition of saving as well, because
the reduction in labor-income risk may affect the amount of
financial risk that an individual chooses to bear. Given
plausible restrictions on preferences, any change in taxes that
reduces an individual's labor-income risk and does not make her
worse off will lead her to invest more in risky assets. This
effect can be quantitatively important for realistic changes in
tax rates.
Keywords: Taxation, saving, uncertainty
Full paper (3250 KB PDF)
Home | Economic research and data | FR working papers | FEDS | 1996 FEDS papers
Accessibility
To comment on this site, please fill out our feedback form.
Last update: July 16, 1997
|