Saving behavior and Risk Taking of the Dutch: evidence from the Tax Reform of 2001

We estimate the impact of the marginal tax rate on capital income on risk-bearing assets for the extensive and intensive margin. In contrast to the literature, we use instrumental variables for the marginal tax rates to correct for endogeneity. Moreover we use the exogenous variation in marginal tax rates from the Dutch Tax Reform of 2001. From the OLS and logit regressions we find that an increase of the marginal tax rate of 10 percent points results in a 3 percent point increase of the share of risky assets in total portfolio. That increase in marginal tax rate also enlarges the probability of having these assets with 2.5 percent