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Canadian Retirement Savings Plans and the Foreign Property Rule

  • David Burgess
  • Joel Fried

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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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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  1. French, Kenneth R & Poterba, James M, 1991. "Investor Diversification and International Equity Markets," American Economic Review, American Economic Association, vol. 81(2), pages 222-26, May.
  2. 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.
  3. R. Mehra & E. Prescott, 2010. "The equity premium: a puzzle," Levine's Working Paper Archive 1401, David K. Levine.
  4. Solnik, Bruno H., 1974. "An equilibrium model of the international capital market," Journal of Economic Theory, Elsevier, vol. 8(4), pages 500-524, August.
  5. Linda L. Tesar & Ingrid M. Werner, 1992. "Home Bias and the High Turnover," NBER Working Papers 4218, National Bureau of Economic Research, Inc.
  6. Leonardo Bartolini & Allan Drazen, 1996. "Capital account liberalization as a signal," Staff Reports 11, Federal Reserve Bank of New York.
  7. 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.
  8. 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.
  9. E.P. Davis, 1994. "An International Comparison of the Financing of Occupational Pensions," FMG Special Papers sp62, Financial Markets Group.
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