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Wealth accumulation and portfolio choice with taxable and tax-deferred accounts

Gomes, Francisco, Michaelides, Alexander and Polkovnichenko, Valery (2005) Wealth accumulation and portfolio choice with taxable and tax-deferred accounts. 4852. Centre for Economic Policy Research, London, UK.

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Abstract

We calibrate a life-cycle model with uninsurable labour income risk and borrowing constraints to match wealth accumulation and portfolio allocation 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: http://www.cepr.org
Additional Information: © 2005 Francisco J. Gomes, Alexander Michaelides and Valery Polkovnichenko
Library of Congress subject classification: H Social Sciences > HG Finance
Journal of Economic Literature Classification System: G - Financial Economics > G1 - General Financial Markets > G11 - Portfolio Choice; Investment Decisions
Sets: Research centres and groups > Financial Markets Group (FMG)
Collections > Economists Online
Departments > Economics
Collections > LSE Financial Markets Group (FMG) Working Papers
Rights: http://www.lse.ac.uk/library/usingTheLibrary/academicSupport/OA/depositYourResearch.aspx
Identification Number: 4852
Date Deposited: 04 Jun 2008 16:24
URL: http://eprints.lse.ac.uk/5362/

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