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Canadian Retirement Savings Plans and the Foreign Property Rule

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Author Info

  • 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.

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Bibliographic Info

Article provided by University of Toronto Press in its journal Canadian Public Policy.

Volume (Year): 25 (1999)
Issue (Month): 3 (September)
Pages: 395-416

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Handle: RePEc:cpp:issued:v:25:y:1999:i:3:p:395-416

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References

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  1. Bartolini, Leonardo & Drazen, Allan, 1997. "Capital-Account Liberalization as a Signal," American Economic Review, American Economic Association, vol. 87(1), pages 138-54, March.
  2. R. Mehra & E. Prescott, 2010. "The equity premium: a puzzle," Levine's Working Paper Archive 1401, David K. Levine.
  3. E.P. Davis, 1994. "An International Comparison of the Financing of Occupational Pensions," FMG Special Papers sp62, Financial Markets Group.
  4. Kenneth R. French & James M. Poterba, 1991. "Investor Diversification and International Equity Markets," NBER Working Papers 3609, National Bureau of Economic Research, Inc.
  5. David Burgess & Joel Fried, 1998. "Canadian Tax Deferred Savings Plans and the Foreign Property Rule," UWO Department of Economics Working Papers 9806, University of Western Ontario, Department of Economics.
  6. Jorion, Philippe & Schwartz, Eduardo, 1986. " Integration vs. Segmentation in the Canadian Stock Market," Journal of Finance, American Finance Association, vol. 41(3), pages 603-14, July.
  7. Solnik, Bruno H., 1974. "An equilibrium model of the international capital market," Journal of Economic Theory, Elsevier, vol. 8(4), pages 500-524, August.
  8. 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.
  9. Linda L. Tesar & Ingrid M. Werner, 1992. "Home Bias and the High Turnover," NBER Working Papers 4218, National Bureau of Economic Research, Inc.
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Cited by:
  1. Burgess, David & Fried, Joel, 2005. "The foreign property rule: a cost benefit analysis," Journal of Pension Economics and Finance, Cambridge University Press, vol. 4(03), pages 273-289, November.
  2. 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.

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