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Portfolio choice and wealth accumulation with taxable and tax-deferred accounts

Gomes, Francisco, Michaelides, Alexander and Polkovnichenko, Valery (2004) Portfolio choice and wealth accumulation with taxable and tax-deferred accounts. Financial Markets Group Discussion Papers (519). Financial Markets Group, The London School of Economics and Political Science, London, UK.

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We calibrate a life-cycle model with uninsurable labor income risk and borrowing constraints to match portfolio allocation and wealth accumulation profiles of direct and indirect stockholders in both taxable and tax-deferred accounts. Tax-deferred accounts generate an increase in wealth accumulation that is larger for wealthier households. Furthermore, while the cost of following a fixed contribution rate over the life cycle is small, the optimal rate can differ substantially across households, and the welfare losses from choosing the wrong one can be substantial. Finally, the welfare gain from having access to a tax-deferred account ranges from less than 0.1% to 11.5%, depending on the preference parameters.

Item Type: Monograph (Discussion Paper)
Official URL:
Additional Information: © 2004 The Authors
Divisions: Financial Markets Group
Subjects: H Social Sciences > HG Finance
H Social Sciences > HB Economic Theory
JEL classification: G - Financial Economics > G1 - General Financial Markets > G11 - Portfolio Choice; Investment Decisions
Date Deposited: 28 Aug 2009 09:14
Last Modified: 16 May 2024 11:34

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