TY  - JOUR
AU  - Razin,Assaf
AU  - Sadka,Efraim
AU  - Yuen,Chi-Wa
TI  - Quantitative Implications of the Home Bias: Foreign Underinvestment, Domestic Oversaving, and Corrective Taxation
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 6339
PY  - 1997
Y2  - December 1997
UR  - http://www.nber.org/papers/w6339
L1  - http://www.nber.org/papers/w6339.pdf
N1  - Author contact info:
Assaf Razin
Department of Economics
Cornell University
Uris 422
Ithaca, NY 14853
Tel: 607/255-9625
Fax: 607/255-2818
E-Mail: ar256@cornell.edu

Efraim Sadka
Tel Aviv University
Eitan Berglas School of Economics
P.O.B. 39040
Ramat Aviv, Tel Aviv, 69978, ISRAEL
E-Mail: sadka@post.tau.ac.il

Chi-wa Yuen
University of Hong Kong
E-Mail: cwyuen@ust.hk
AB  - There is strong evidence about a home-court advantage in international portfolio" investment.  One explanation for the bias is an information asymmetry between domestic and" foreign investors about the economic performance of domestic firms. This asymmetry causes" two types of distortions: an aggregate production inefficiency and a production-consumption" inefficiency, leading to foreign underinvestment and domestic oversaving respectively.  Such" market failures are found to be quite severe, slightly more so with equity flows than with debt" flows.  These inefficiencies can nonetheless be corrected by a mix of tax-subsidy instruments consisting of taxes on corporate income and on the capital incomes of both residents and" nonresidents.  When only a partial set of instruments is available, however each tax instrument can change radically and may even be reversed although the welfare gains" can be fairly substantial and sometimes close to the first best optimum.  This partial set of" instruments appears to be more effective in handling the market failure in the case of equity" flows than in the case of debt flows.
ER  -