Taxation and the external wealth of nations: Evidence from bilateral portfolio holdings

Harry Huizinga*, Maximilian Todtenhaupt, Johannes Voget, Wolf Wagner

*Corresponding author for this work

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This paper examines the impact of capital income taxation on the composition of foreign portfolio investment and on long-term external wealth. Using data on bilateral portfolio positions for a sample of 37 countries over the period 2001–2017, we find that capital gains and dividend taxation reduce the share of equities in foreign investments, while interest taxation increases this share. To examine the potential effects of capital income tax reform on long-term external wealth, we simulate tax reforms in which each country replaces its actual capital income tax rates by the average tax rates in the sample. We find that the external wealth effects of such reforms can be very substantial, with estimates ranging from +8.5% for Japan to −10% for New Zealand.

Original languageEnglish
Article number102548
JournalJournal of International Money and Finance
Publication statusPublished - Apr 2022

Bibliographical note

Funding Information:
We thank Martin Jacob for exchanging data on nonresident dividend and interest withholding tax rates. We gratefully acknowledge helpful comments from Tobias Bornemann, Ruud De Mooji, Dhammika Dharmapala, Philipp Krug, Kevin Markle, Peter Merrill, and seminar participants at the University of Mannheim, the 9th Conference on Current Research in Taxation in Barcelona, the 21st ZEW Summer Workshop, 75th IIPF Annual Congress in Glasgow, the 2019 Skatteforum in Oslo, and the 2018 NTA Annual Conference in New Orleans.

Publisher Copyright:
© 2021


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