Taxation Effects on the Optimal Pension Fund Portfolio

25 Pages Posted: 23 May 2010 Last revised: 3 Oct 2011

See all articles by Katarzyna Romaniuk

Katarzyna Romaniuk

Université de Paris 1 Panthéon-Sorbonne; Xi'an Jiaotong-Liverpool University (XJTLU)

Date Written: March 28, 2011


The paper deals with taxation effects on optimal portfolio rules of de…fined contribution (DC) and de…fined benefi…t (DB) pension funds in a continuous-time setting. Following practice, three tax types are considered: on contributions, investment gains and pensions. We focus on the tax effects on risk-taking. It is emphasized that the correct measure of risk-taking is not the entire risky asset proportion, yet the speculative fund. We show that the tax types able to possibly influence the risk-taking behavior are pension and investment gain taxes. Yet this potential ability concerns DC funds only, and the effect direction does not seem obvious. Risk-taking stays unchanged when applying taxes on contributions, as these affect the contribution hedging demand only. If a risk-taking - neutral fi…scal policy is sought, contribution taxation thus constitutes the adequate tool.

Keywords: taxation, pension funds, optimal asset allocation, risk-taking, stochastic dynamic programming

JEL Classification: C61, G11, G23, H22, H39

Suggested Citation

Romaniuk, Katarzyna, Taxation Effects on the Optimal Pension Fund Portfolio (March 28, 2011). Available at SSRN: or

Katarzyna Romaniuk (Contact Author)

Université de Paris 1 Panthéon-Sorbonne ( email )

17, rue de la Sorbonne
Paris, 75005

Xi'an Jiaotong-Liverpool University (XJTLU) ( email )

111 Renai Road, SIP
Suzhou, JiangSu province 215123

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