Asset demand in the financial AIDS portfolio model -- evidence from a major tax reform

Richard Ochmann

Applied Financial Economics, 2013, vol. 23, issue 8, 649-670

Abstract: In this article, new evidence from the financial Almost Ideal Demand Sysytem (AIDS) portfolio model is featured, making use of additional exogenous rate-of-return variation, which has been mostly disregarded in the relevant literature so far. A Two-Stage Budgeting Model (2SBM) of asset demand is constructed and applied to German survey data for a time frame where first implementations of a major income tax reform in Germany significantly altered the tax schedule. Marginal Tax Rates (MTR) at the household level are simulated in an income taxation module. Relatively great rate-of-return elasticities for, among others, owner-occupied housing as well as capital and private pension insurances suggest that return-related reactions are stronger at the asset allocation decision than they are usually found for the consumption-savings decision.

Date: 2013
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Persistent link: https://EconPapers.repec.org/RePEc:taf:apfiec:v:23:y:2013:i:8:p:649-670

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DOI: 10.1080/09603107.2012.744134

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