• ISSN: 2301-3567 (Print), 2972-3981 (Online)
    • Abbreviated Title: J. Econ. Bus. Manag.
    • Frequency: Quarterly
    • DOI: 10.18178/JOEBM
    • Editor-in-Chief: Prof. Eunjin Hwang
    • Executive Editor: Ms. Fiona Chu
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HOME > Archive > 2019 > Volume 7 Number 4 (Nov. 2019) >
JOEBM 2019 Vol.7(4): 157-163 ISSN: 2301-3567
DOI: 10.18178/joebm.2019.7.4.599

Does Taxation at the Unit of Household Increase the Demand for Risky Asset?

Yulin Liu and Min Zhang

Abstract—With the background of a fierce discussion in the tax reform of transforming the current individual income tax system from levying income tax at the unit of individual to the unit of household in China, this paper studies the implications of a tax reform for households’ risky asset share. We observe that (I) levying taxes at the unit of household is helpful for reducing tax burdens, this, in turn, (II) in the short term, increases household disposable income and causes a wealth effect enhancing households enthusiasm to participate in the financial market and to hold a larger proportion of risky assets, (III) in the long term, affected by a crowding out effect caused on by labor income risk, the increase degree of household risky assets share is lower than that in the short term. Moreover, compared with the current tax system, the volatility of household risky asset holdings is smaller than that in the tax system where tax is levied at the unit of household, which benefit for enhancing households’ financial portfolio stability.

Index Terms—Income tax system, household tax burdens, labor income level, labor income risk, portfolio.

Yulin Liu is with the School of Public Affairs, Chongqing University, Campus A, NO. 174 Sha Zheng Street, Shapingba District, Chongqing, China (e-mail: lylmx@cqu.edu.cn). Min Zhang is with the Economics and Business Administration, Chongqing University, Campus A, NO. 174 Sha Zheng Street, Shapingba District, Chongqing, China (e-mail: lydiazm@163.com).

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Cite:Yulin Liu and Min Zhang, "Does Taxation at the Unit of Household Increase the Demand for Risky Asset?," Journal of Economics, Business and Management vol. 7, no. 4, pp. 157-163, 2019.

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