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Tax incentives, bequest motives, and the demand for life insurance: evidence from a natural experiment in Germany*
Published online by Cambridge University Press: 01 October 2015
Abstract
This paper studies the role of taxation and bequest motives in households’ demand for life insurance. We develop a stylized three-period life cycle model of life insurance demand and test its predictions regarding tax changes and bequests motives. An unexpected halving of the tax exemption limit for interest and dividend income in Germany allows us to identify the impact of changes in taxation on the demand for life insurance in a difference-in-differences setting. In line with our theoretical predictions, we document that ownership of life insurance products increased significantly among households affected by the reform. We also find some evidence of a more pronounced response among households with stronger bequest motives.
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- Information
- Journal of Pension Economics & Finance , Volume 14 , Special Issue 4: Household Finance , October 2015 , pp. 525 - 553
- Copyright
- Copyright © Cambridge University Press 2015
Footnotes
We would like to thank Thiess Büttner, Tom Crossley, the editor Michael Haliassos, and the anonymous referees for helpful comments. Financial support from the Deutsche Forschungsgemeinschaft through GRK 801 is gratefully acknowledged. The views expressed in this paper are solely our own and do not necessarily represent those of the European Central Bank, the World Bank, their Executive Boards or the governments the World Bank Executive Board represents.
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