Taxing the Bandit Kings

Yale Law Journal Pocket Part, Vol. 118, 2008

9 Pages Posted: 10 Sep 2008 Last revised: 15 Jan 2009

See all articles by Mihir A. Desai

Mihir A. Desai

Harvard Business School - Finance Unit; National Bureau of Economic Research (NBER)

Dhammika Dharmapala

University of Chicago Law School

Date Written: September 8, 2008


The rise of significant inbound capital flows originating from sovereign wealth funds (SWFs) has occasioned a debate over the appropriate regulatory and tax treatment of these funds. In particular, it has been argued that the tax exemption currently enjoyed by SWFs confers an advantage on these entities as providers of capital to U.S. firms relative to private foreign investors, and that a tax should be imposed on SWFs to restore fairness. This brief essay argues that the distinctive nature of the portfolio choices facing SWFs negates this fairness argument. Indeed, changing the tax treatment of SWFs as has been proposed would distort choices that are otherwise efficient and would handicap U.S. firms and workers.

Keywords: sovereign wealth funds, sovereign immunity, taxes, foreign portfolio investment

JEL Classification: F21, F23, G30, H25

Suggested Citation

Desai, Mihir A. and Dharmapala, Dhammika, Taxing the Bandit Kings (September 8, 2008). Yale Law Journal Pocket Part, Vol. 118, 2008, Available at SSRN: or

Mihir A. Desai (Contact Author)

Harvard Business School - Finance Unit ( email )

Boston, MA 02163
United States
617-495-6693 (Phone)
617-496-6592 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Dhammika Dharmapala

University of Chicago Law School ( email )

1111 E. 60th St.
Chicago, IL 60637
United States

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