Do investors respond to tax reform? Evidence from a natural experiment in Germany

Sauter, Nicolas; Winter, Joachim

doi:10.1016/j.econlet.2010.05.003

Cited by 5 publications

(6 citation statements)

References 3 publications

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“…This reasoning is confirmed by the data. For example, Sauter and Winter (2010) show descriptively that the eventual abolition of the tax advantage for life insurance in Germany in 2005 resulted in an immediate drop in sales of new contracts. By contrast, ownership rates declined only gradually from 52% in 2004 to 42% in 2011 according to the SOEP.…”

Section: Discussionmentioning

confidence: 99%

“… 10 The second reform was eventually passed a few years later and entered into force on January 2005. Sauter and Winter (2010) find a significant increase in life insurance sales in anticipation of this reform, which is even visible in a sharp upward-sloping increase in Google searches of the German term ‘Lebensversicherung’ (life insurance) towards the end of 2004. …”

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confidence: 99%

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Tax incentives, bequest motives, and the demand for life insurance: evidence from a natural experiment in Germany

Sauter

Walliser

Winter

2015

Journal of Pension Economics and Finance

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This paper studies the role of taxation and bequest motives in households' demand for life insurance. We develop a stylized three-period life cycle model of life insurance demand and test its predictions regarding tax changes and bequests motives. An unexpected halving of the tax exemption limit for interest and dividend income in Germany allows us to identify the impact of changes in taxation on the demand for life insurance in a difference-indifferences setting. In line with our theoretical predictions, we document that ownership of life insurance products increased significantly among households affected by the reform. We also find some evidence of a more pronounced response among households with stronger bequest motives.JEL CODES: D91, C25, D14, G11

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Section: Discussionmentioning

confidence: 99%

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confidence: 99%

Tax incentives, bequest motives, and the demand for life insurance: evidence from a natural experiment in Germany

Sauter

Walliser

Winter

2015

Journal of Pension Economics and Finance

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“…In countries, such as the US and the UK, many households buy their first family homes relatively early in their life cycle and this decision determines a large fraction of their consumption and saving pattern over future years. In Germany, due to its favourable tax treatment, the acquisition of life‐insurance policies with substantial saving components during the early stage of the active working life has been quite common in the past (Sauter and Winter, 2010). The acquisition of a family home or a life‐insurance policy is a one‐time decision that fixes a substantial part of life‐cycle saving and it reduces the scope for discretionary saving over remaining years substantially.…”

Section: Discussionmentioning

confidence: 99%

Rules of Thumb in Life‐Cycle Saving Decisions

Winter

Schlafmann

Rodepeter

2012

The Economic Journal

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We analyse life-cycle saving decisions when households use simple heuristics, or rules of thumb, rather than solve the underlying intertemporal optimization problem. We simulate life-cycle saving decisions using three simple rules and compute utility losses relative to the solution of the optimization problem. Our simulations suggest that utility losses induced by following simple decision rules are relatively low. Moreover, the two main saving motives reflected by the canonical life-cycle model -long-run consumption smoothing and short-run insurance against income shocks -can be addressed quite well by saving rules that do not require computationally demanding tasks such as backward induction.Keywords: saving, life-cycle models, bounded rationality, rules of thumb JEL classification: D91; E21 * Corresponding author: Joachim Winter, Department of Economics, University of Munich, Ludwigstr.33, D-80539 Munich, Germany. Email: winter@lmu.de. This paper is a substantially revised and extended version of unpublished research by Rodepeter and Winter (1999). We would like to thank Michael Adam, Axel Börsch-Supan, Thomas Crossley, Angelika Eymann, Werner Güth, Silke Januszewski, Ronald Lee, Alexander Ludwig, Annamaria Lusardi, Daniel McFadden, Matthew Rabin, Paul Ruud, Daniel Schunk, the special issue editor (Rachel Griffith) and referees, and participants at numerous seminars and conferences for helpful discussions and comments. We gratefully acknowledge financial support by the Deutsche Forschungsgemeinschaft (DFG) through SFB 504 at the University of Mannheim (Rodepeter and Winter) and through GRK 801 at the University of Munich (Schlafmann). Kathrin Schlafmann also gratefully acknowledges support by LMU Mentoring.

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“…This is in line with the tax changes that took place when the West German tax rules were introduced in the former GDR. These gave large tax incentives to married couples and disincentives to households with children to own life insurance, which may also explain why studies that use the same data as this article cannot find evidence for higher life insurance ownership among households with children in post‐reunification Germany (Jürges, ; Sauter et al ., ).…”

Section: Introductionmentioning

confidence: 97%

“…By contrast, the evidence is less conclusive in Germany, given the status of life insurance as a tax‐advantaged savings vehicle. Changes in the taxation of life insurance have therefore in the past resulted in significant demand shifts (Sauter and Winter, ), which contrasts to the experience in other European economies (Jappelli and Pistaferri, ). Based on repeated cross‐sections of the German Income and Expenditure Survey (EVS), Sommer () identifies stronger bequests motives among households with children, whereas Jürges () and Sauter et al .…”

Section: Introductionmentioning

confidence: 99%

Bequest Motives and the Demand for Life Insurance in East Germany

Sauter¹

2014

German Economic Review

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Empirical studies of household saving remain inconclusive about the role of bequest motives. This may be due to the diluting effect of different tax regimes across countries and time on estimates of bequest motives. Relative to market‐based economies, the former German Democratic Republic can be viewed as an experimental institutional setting where life‐insurance demand was not influenced by tax considerations. This allows isolating bequest motives from other life‐cycle and precautionary savings motives. Analyzing the demand for life insurance, we find a significantly higher ownership probability among households with children and a high regard for the family, confirming bequest motives in life‐insurance demand.

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Do investors respond to tax reform? Evidence from a natural experiment in Germany

Cited by 5 publications

References 3 publications

Tax incentives, bequest motives, and the demand for life insurance: evidence from a natural experiment in Germany

Tax incentives, bequest motives, and the demand for life insurance: evidence from a natural experiment in Germany

Rules of Thumb in Life‐Cycle Saving Decisions

Bequest Motives and the Demand for Life Insurance in East Germany

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