New Discussion Paper of the Centre for Economic Policy Research (CEPR), with Giacomo Corneo and Pierluigi Vellucci.
A sovereign wealth fund can bring about broad participation in the financial gains of enterprises, especially AI-generated gains. But building such a fund takes time. This paper determines the waiting time necessary to build a fund of economically significant size, depending on the allotted fiscal resources and the macro-financial environment. As the fund’s returns are uncertain, its take-off is framed as a diffusion process. A backward Kolmogorov equation characterises the first-passage probability of the fund-to-GDP ratio. Quantitative results on waiting time markedly differ from those obtained in a deterministic setup. Under a scenario that is plausible for mature economies, we find that a fund close to 30 percent of GDP can be established with high probability after twenty-four years.