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Purpose – To study the allocation in equity markets of sovereign wealth funds’ (SWF) investments with respect to other institutional investors. To analyze the role of political regimes in the sending and recipient countries as a determinant of the allocation of SWF investments.

Methodology/approach – We use mutual funds’ investments as a benchmark for SWF investment allocations. We collect data of SWF and mutual fund equity investments at the firm level and analyse them on a geographical and sector basis. We compare target investments for these two groups by looking at the political regime in the sending and recipient country, using different political indicators (Polity IV, Bertelsmann). We provide a comparison of SWFs and pension funds based on governance features related to investment.

Findings – We find that the fear that sovereigns with political motivations use their financial power to secure large stakes in OECD countries is not confirmed by the data. SWF investment decisions do not differ greatly from those of other wealth managers. Although there can be differences in the allocation, political regimes in the recipient countries do not play a role in explaining the allocation of sovereign wealth funds.

Social implications – Investment from public institutions, such as sovereign wealth funds, can have significant implications at the economic and social level. Sovereign funds are potential sources of capital for emerging economies, and therefore can enchance economic growth. It is important to understand to what extent public institutional investors behave differently from private investors. The “political bias” is not a relevant factor for sovereign funds, or for other institutional investors, for allocating their capital. More often than not, their asset allocation strategies converge with other large investors, these being driven by financial and not political bias.

Originality/value of the chapter – The chapter is an original contribution providing a firm-level analysis of equity holdings for two groups of institutional investors. Moreover, it emphasizes the political dimension of institutional investments, highlighting the priorities and constraints of public investors participating in financial markets. The chapter suggests that SWFs do not discriminate by the political regime of the recipient country in their asset allocation.

Institutional investors have increasingly gained importance since the early 1990s. The assets under management in these funds have increased threefold since 1990 to reach more than US$45 trillion in 2005, including over US$20 trillion in equity (Ferreira & Matos, 2008). Further, the value of institutional investors' assets represents roughly 162.6% of the OECD gross domestic product in 2005 (Gonnard, Kim, & Ynesta, 2008). Given the magnitude of institutional investors' holdings relative to the world market capitalization, challenging questions on the economic role of these investors have been raised. One such question concerns their impact on the stability of stock markets. On the one hand, active strategies of buying and selling shares by these investors may contribute to moving stock prices away from their fundamental values. On the other hand, if all institutional investors react to the same information in a timely manner, they are in fact helping to increase market efficiency by speeding up the adjustment of prices to new fundamentals (for competing theories on the role of institutional investors, see, e.g., Lakonishok, Shleifer, & Vishny, 1992). This view of institutional investors as “efficiency drivers” generated considerable debate for many years (see, e.g., Ferreira & Laux, 2007; French & Roll, 1986).

Income and wealth in Brazil is distributed as unequally and unjustly as in any other nation or region of the world. This chapter examines how wealth and income has been, is, or might be made available to the population. Using the conceptual framework of the substantive economics developed by Karl Polanyi, Conrad Arensberg, and their colleagues, the distribution of goods and services is analyzed as a socially “instituted process,” separate from production and other factors generally included in studies of economics. Four approaches are presented as they were elaborated in the thinking of authors who wrote at different times in history: The Infante Dom Pedro of Portugal in the early 15th century, Adam Smith in the late 18th century, Karl Marx in the 19th century, and Louis Kelso in the mid-20th century. Each approach, three of which have been, and one which might be instituted, is explored in terms of its potential for reducing poverty and correcting distributive injustice.

Tax incentives can be a useful tool to stimulate investment in developing countries. However, interest groups often are able to exert considerable influence in its management, if not its design. The purpose of this paper is to use a power-based approach to the political economy of tax reform to analyse the case of tax incentives for investment in the Dominican Republic. Based on original interviews and a detailed analysis of regulations, the authors study how interest groups work within the institutional framework to seek outcomes that best fit their objectives. However, when unsuccessful, they become powerful advocates of change. These power dynamics have important implications for the design and management of tax incentives in the Dominican Republic and in other developing economies.

Case study based on informed interviews with policy makers, lobbyists and researchers combined with statistical and administrative information to test the main hypotheses.

While the role of influence groups in creating tax schemes has been widely studied, the authors show that these groups can also have an important role in the administration of the regime and making it more or less open to modifications. The paper shows that the capture of investment incentives has rendered the tax system rigid and unstable in the Dominican Republic, subjecting the public interest hostage to the gain of few.

Therefore, there is a need to review and reform tax policy, not just from a technical viewpoint, but more importantly altering the political arrangements. More transparency in assessing the impact of these schemes, disclosing information of who has access to tax exemptions and budgeting the tax expenditures can also be tools to increase public control over these instruments. Also, making it more difficult to grant tax incentives, for example by asking for an ex-ante justification and quantification of the externalities supposedly being created would reduce the abuse by power groups of these instruments. Without more balanced and independent leadership, it would be extremely difficult to advance in these fields.

The literature on the political economy of tax incentives normally focuses on how key actors work around the institutional framework to solve conflict of interests. This paper addresses a complementary – and in the viewpoint equally relevant – aspect of the political economy of tax incentives: once enacted, vested interests have a particular motivation to keep the incentives in place, and therefore the authors should understand how key actors work from within the institutional framework to seek the outcomes that better suit their interests. The analysis focuses on Dominican Republic, based on official data and additional in-depth interviews with policy makers, entrepreneurs and consultants that assist firms with tax and regulation issues.