Portfolio choice and taxation: the determinants of asset composition.

Summary Today, households are more concerned with portfolio choices than in the past, even though management is often inaccessible due to financial innovations. This complexity is further accentuated by the meanders of the French tax system. Indeed, if it is risky to choose an investment only for its tax advantage, it is dangerous not to measure its impact. This paper proposes to analyze the factors that explain the amount and composition of wealth. Among these elements, taxation is the subject of a particularly original analysis. The approach is singular since it consists in using the latest extensions of the theory of financial markets and coupling it to the theory of the life cycle (lch), which is essential for the study of the motives of holding. The modern theory of finance, by integrating lch, makes it possible to analyze asset choices in an intertemporal framework, on the basis of continuous models. The presentation of the models by increasing complexity and the systematic use of numerical simulations offer comparative measures of the influence of the various factors. For the empirical part, the tax distortions, the impact of the amount of wealth, income, age, inheritance, pcs, family structure, place of residence, level of education, are studied using different approaches: descriptive statistics, econometrics and theil indicator. The discriminating variables in the explanation of the holding rate of each asset, are mainly the level of wealth, age, heritage and pcs. Moreover, the amount invested in each asset depends very strongly on the composition of the portfolio. As for taxation, while it does not seem to influence the level of diversification, it does create some distortions in the amounts invested in the assets. Thus, even if the choice of assets can be guided by a concern for net profitability after tax, the lack of information, the disparities in human capital and the complexity of the tax system explain why few households are able to take advantage of the full range of tax benefits.