Sovereign wealth funds, portfolio choice and corrective taxes

Jostein Tvedt

Macroeconomics and Finance in Emerging Market Economies, 2012, vol. 5, issue 2, 187-196

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.

Date: 2012
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DOI: 10.1080/17520843.2011.652641

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