Household portfolio allocation in the Netherlands : Saving accounts versus stocks and bonds

This paper analyzes the portfolio structure of households in the Netherlands. It considers the allocation of financial wealth to two major asset categories, namely saving accounts on the one hand and stocks and bonds on the other hand. The latter category is considered to be more risky than the former. We analyze the impact of the overall level of wealth, the marginal tax rate, and other variables on the allocation between assets, using cross-section data drawn in 1988 that provide detailed information on the structure of household wealth, not only on ownership but also on the amounts of wealth held in the respective asset categories. The econometric specification is a trivariate tobit type model. One equation explains the total level of wealth, a second one explains individual threshold values below which no wealth is held. The third equation explains the share of wealth invested in stocks and bonds. The model is estimated using Full Information Maximum Likelihood. Limited information provided by the data (non reporting) is explicitly taken into account. Results show that wealth and the marginal tax rate are major determinants of the allocation between safe and risky assets.