Investors take years to move money after tax changes, but new money stays out

New research shows that investors take a long time to change their stock portfolios after tax rules shift. This means that while existing investors might not sell immediately, new money will avoid the market if taxes make stocks less appealing.

Governments often assume that tax changes will immediately shift where people put their money. This paper shows that investors are slow to react, especially existing ones, but new investors will avoid markets with less favorable tax treatment. This means tax policy might take years to show its full effect on capital allocation, making it harder to predict outcomes.