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Sovereign wealth funds, portfolio choice and corrective taxes

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  • Jostein Tvedt

Abstract

In a setting where investors have preferences for future wealth, sovereign wealth funds should invest relatively less in equities than the representative private investor. Tax asymmetries make it relatively more attractive for sovereign wealth funds to invest in fixed income than in stock markets. A high fraction invested in equities may be an indication that the sovereign wealth fund's principal has other preferences than the representative private investor. Host countries may levy corrective taxes on foreign sovereign wealth funds based on the ‘private behaviour equivalent’ principle, in order to reduce potential social costs related to the sovereign wealth funds' investment activities.

Suggested Citation

  • Jostein Tvedt, 2012. "Sovereign wealth funds, portfolio choice and corrective taxes," Macroeconomics and Finance in Emerging Market Economies, Taylor & Francis Journals, vol. 5(2), pages 187-196, December.
    • Handle: RePEc:taf:macfem:v:5:y:2012:i:2:p:187-196
    DOI: 10.1080/17520843.2011.652641
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    References listed on IDEAS

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    1. Edwin M. Truman, 2010. "Sovereign Wealth Funds: Threat or Salvation?," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 4983, April.
    2. Campbell, John Y. & Viceira, Luis M., 2002. "Strategic Asset Allocation: Portfolio Choice for Long-Term Investors," OUP Catalogue, Oxford University Press, number 9780198296942.
    3. Edwin M. Truman, 2007. "Sovereign Wealth Funds: The Need for Greater Transparency and Accountability," Policy Briefs PB07-6, Peterson Institute for International Economics.
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    Cited by:

    1. Mahmoud Mohieldin & Ahmed Rostom & Chahir Zaki, 2021. "The external wealth of Arab nations: Structure, trends, and policy implications," Economic Notes, Banca Monte dei Paschi di Siena SpA, vol. 50(2), July.

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