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

Year: 2025

Type: Journal Publication

Journal: Management Science

Abstract

The removal of an intertemporal tax discontinuity in Germany provides us with a natural experiment to study the causal effect of taxes on individual stock-trading behavior and the disposition effect. Using individual investor transactions data combined with nonparametric regressions and bunching methods, we find that the presence of the tax discontinuity induces investors to adjust their holding periods, which reduces their effective tax rate by 11.3%. We also find that tax effects dominate the disposition effect in the days around the discontinuity and can inhibit it (by about 20%) during the six months preceding the discontinuity. We discuss the consequences of our results for the firms whose stocks are traded and policy implications.

Publication Information

TRR 266 researchers

Philipp Dörrenberg University of Mannheim

Johannes Voget University of Mannheim

Johannes Voget holds the Chair of Taxation & Finance at the University of Mannheim. His research interests cover international taxation, corporate finance and public finance. Prior to joining the University of Mannheim, Johannes Voget held a position as Research Fellow at the Oxford University Centre for Business Taxation, with which he is still affiliated as a Research Associate.

External researchers

Florian Buhlmann

Benjamin Loos

Start Page

4558

End Page

4567

Issue Number

Volume Number

DOI

DOI Link

Cite this article as

Buhlmann, F., Dörrenberg, P., Loos, B., & Voget, J. (2025). How do taxes affect the trading behavior of private investors? Evidence from individual portfolio data. Management Science, 72(5): 4558-4567.

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Participating Institutions

TRR 266‘s main locations are Paderborn University (Coordinating University), HU Berlin, and University of Mannheim. All three locations have been centers for accounting and tax research for many years. They are joined by researchers from LMU Munich, Frankfurt School of Finance and Management, Goethe University Frankfurt, University of Cologne, Leibniz University Hannover and TU Darmstadt who share the same research agenda.