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IPS184 Sanvi Avouyi-Dovi et al.
the FT would lead to a substitution out of Lifebonds and, to a lesser extent,
M2M1 and M3M2 into Assets and, to a lesser extent, M1, with PEL being
unaffected. Indeed, the FT would increase average taxation and thus lower the
after tax return on Lifebonds and PEL (more precisely on life insurance
contracts) and lower it on Assets (more precisely shares). Furthermore, in the
baseline model, Assets are substitutable for Lifebonds (see Lifebonds
equation) and complementary to PEL (see PEL equation), the latter effect
offsetting the negative impact of the FT on the PEL yield.
An “Extended FT” would also cover so-called A passbooks included in
M2M1. The column “Extended FT” in Table 11 shows that the substitutions
resulting from the FT as it stands (into Assets and M1 and out of other liquid
assets) would be strengthened if the FT were extended to all financial
products’ income.

Table 10: Impact of a flat tax on savings income
(Deviation from baseline, in percentage points and EUR billions)
FT Extended FT

Share € Amount Share € Amount
M1 0,2 7,3 0,3 10,9

M2M1 -0,1 -4,4 -0,4 -16,0

M3M2 -0,2 -7,9 -0,1 -1,8

PEL 0,0 -1,4 -0,1 -1,9

Assets 0,8 31,5 0,9 34,0

Lifebonds -0,7 -25,2 -0,7 -25,2

4. Discussion and Conclusion
Our model validates the FAIDS model as an appropriate framework for
satisfactorily describing the dynamics of French households’ portfolio. Indeed,
this model highlights and quantifies the effects of the core explanatory
variables (returns on assets, wealth) but also the roles of some additional
exogenous factors. In particular, the model distinguishes the substitution and
complementarity effects between financial assets, highlighting the role of
wealth as one of the main drivers of the dynamics of certain financial assets
and underlining the relative importance of income risk in the dynamics of
these assets.

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