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Canadian Retirement Savings Plans and the Foreign Property Rule

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  • David Burgess
  • Joel Fried

Abstract

This paper argues that the Foreign Property Rule (FPR), which limits the foreign content of a Registered Savings Plan to no more than 20 percent of book value, should be removed as quickly as possible. Given the globalization of financial markets, the FPR does not protect what it is meant to protect - a pool of savings for investment in Canada. Instead, it distorts the allocation of credit among firms, and forces agents to use more costly instruments - derivatives - to achieve desired foreign risk exposure. Since the FPR lowers the return on registered savings without benefiting any identifiable group, removing it would be an unequivocal gain to Canadians.

Suggested Citation

  • David Burgess & Joel Fried, 1999. "Canadian Retirement Savings Plans and the Foreign Property Rule," Canadian Public Policy, University of Toronto Press, vol. 25(3), pages 395-416, September.
    • Handle: RePEc:cpp:issued:v:25:y:1999:i:3:p:395-416
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    References listed on IDEAS

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    1. Mehra, Rajnish & Prescott, Edward C., 1985. "The equity premium: A puzzle," Journal of Monetary Economics, Elsevier, vol. 15(2), pages 145-161, March.
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    6. Krueger, Malte, 1999. "Dynamic hedging in currency crisis," Economics Letters, Elsevier, vol. 62(3), pages 347-350, March.
    7. David Burgess & Joel Fried, 1998. "Canadian Tax Deferred Savings Plans and the Foreign Property Rule," University of Western Ontario, Departmental Research Report Series 9801, University of Western Ontario, Department of Economics.
    8. French, Kenneth R & Poterba, James M, 1991. "Investor Diversification and International Equity Markets," American Economic Review, American Economic Association, vol. 81(2), pages 222-226, May.
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    10. repec:cdl:ucsbec:16-92 is not listed on IDEAS
    11. George H. Pink, 1989. "Government Restriction on Foreign Investment by Pension Funds: An Empirical Evaluation," Canadian Public Policy, University of Toronto Press, vol. 15(3), pages 300-312, September.
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    Cited by:

    1. Joel Fried, 2005. "Elimination of the Foreign Property Rule on Tax Deferred Savings Plans," University of Western Ontario, Economic Policy Research Institute Working Papers 20055, University of Western Ontario, Economic Policy Research Institute.
    2. Burgess, David & Fried, Joel, 2005. "The foreign property rule: a cost–benefit analysis," Journal of Pension Economics and Finance, Cambridge University Press, vol. 4(3), pages 273-289, November.

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