Essays on household portfolios and tax-deferred accounts

My dissertation consists of three essays. The first essay. The Asset Location Puzzle: Taxes Matter, reexamines the “asset location puzzle”, the phenomenon that asset location decisions observed in practice deviate substantially from the prediction of conventional wisdom. I develop a quantitative life cycle model of household portfolio chokes in both taxable and tax-deferred accounts. The model incorporates key features of the U.S. tax system. I find that taxes matter significantly for households' asset location decisions. For a given tax code, how often households realize capital gains is crucial for determining asset location because it affects the tax burden on stocks and hence the benefits households receive from pre-tax accumulation by holding stocks in tax-deferred accounts. Changes in tax code may have a large effect on optimal asset location. I also show that the precautionary motive is not quantitatively important in terms of its effect on asset location.;The third essay, The Effects of Employer Matching Contributions in Defined Contribution Pension Plans, studies the effects of employer matching contributions on defined contribution (DC) pension plan participation and employees' voluntary contributions. Empirical studies find a mixed effect of employer matching on employee contributions. This essay indicates that caution must be taken when interpreting empirical results. Using a simple life-cycle model, I show that a typical employer matching program dramatically increases the DC plan participation rate for young households, but not for older households. Employer matching also lowers the average of participants' own contributions for all income levels. After controlling for the dilution effect, I find that employer matching increases contribution rates of low-income and young households, while it decreases contribution rates of high-income and older households.;Keywords. Asset Location, Tax-deferred Accounts, Household Portfolios, Entrepreneur, Defined Contribution pension Plan.;In the second essay, Why Did the Private Business Equity Share Fall in Canada, I first document a significant decline in the private business equity share of total assets and net worth in Canada between 1984 and 1999 for households and entrepreneurs. I propose an explanation based on recent financial developments that allow financial intermediaries to better screen and monitor private business borrowers. I then study an incentive model of financial intermediation. The model relies on three key factors: risk aversion, moral hazard, and monitoring. I show that as monitoring costs decrease due to financial developments, entrepreneurs will commit less of their own wealth to private business, and the debt ratio of private business increases.