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Since World War II, the fraction of stocks owned directly by households has decreased by more than 50 percentage points in the United States, the United Kingdom, and Sweden. We argue that tax policy is the driving force. Using data from eight countries, we show that tax-favored investors have replaced households as stockholders and that the fraction of household ownership decreases with measures of the effective marginal tax rate. We further show that the changes in stock ownership accelerate during the high-inflation period of the 1970s and the 1980s. These findings are important for policy considerations on effective taxation and for financial economics research on the longterm effects of taxation on corporate finance and asset prices.

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