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Does Crown Financial Portfolio Composition Matter?



This paper considers Crown financial portfolio composition from a welfare perspective. It argues that a broad definition of the Crown’s portfolio is required for analysing the welfare implications of portfolio composition. In practice, this means incorporating the present discounted value of tax and expenditure flows as well as traditional measures of assets and liabilities. Financial portfolio composition affects welfare for a number of reasons: imperfect and incomplete markets; distortionary taxes; externalities; and agency problems. There is unlikely to be a single policy objective for choosing the preferred portfolio composition that integrates all of those factors. However, it is argued that the Crown should be risk averse and aim to eliminate all diversifiable risk in its portfolio. There is a reasonable case for adopting a low-risk Crown portfolio. Importantly, that does not necessarily require a low-volatility financial portfolio.

Suggested Citation

  • Nick Davis, 2001. "Does Crown Financial Portfolio Composition Matter?," Treasury Working Paper Series 01/34, New Zealand Treasury.
  • Handle: RePEc:nzt:nztwps:01/34

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    References listed on IDEAS

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    Cited by:

    1. Wilson Au-Yeung & Jason McDonald & Amanda Sayegh, 2006. "Australian Government Balance Sheet Management," NBER Working Papers 12302, National Bureau of Economic Research, Inc.

    More about this item


    Public Finance; Portfolio Management;

    JEL classification:

    • H11 - Public Economics - - Structure and Scope of Government - - - Structure and Scope of Government
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt


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