On the Supposed Foreign Superiority: The Italian Tax Puzzle

The increase in the number of assets under management by mutual funds over the last two decades represents one of the most significant changes in the structure of household portfolios that has attracted much attention in the financial and economic literature. The mechanism through which investors select mutual funds involves economic as well as psychological factors, which makes the optimal selection problem difficult. This is especially true for global markets, where consumers can choose between local and foreign funds. The rapid expansion of the mutual fund industry around the world has in fact stimulated major players to look beyond national borders, distributing their products in markets that offer significant growth opportunities. Italy is one of these. In the period 1998–2002 alone, the assets managed by funds rose from €395,102 to €502,418 million, and the role of foreign firms has grown significantly in terms of market share reaching, at the end of 2002, about one-third of the total assets under management (AUM). Why such a foreign fund preference?