Should the Government Be Paying Investment Fees on $3 Trillion of Tax-Deferred Retirement Assets?

56 Pages Posted: 2 Oct 2017 Last revised: 10 Feb 2019

See all articles by Mattia Landoni

Mattia Landoni

Southern Methodist University (SMU) - Finance Department

Stephen P. Zeldes

Columbia Business School - Finance and Economics; National Bureau of Economic Research (NBER)

Date Written: December 16, 2018

Abstract

In a standard benchmark, both individuals and the government are indifferent between traditional tax-deferred retirement accounts and “front-loaded” (Roth) accounts. We add investment fees to this standard benchmark and show that individuals are still indifferent but the government is not. We estimate that, by deferring tax revenue, the U.S. government pays $16.1 billion in annual fees, representing an implicit subsidy to asset managers. We also show that this result continues to hold when asset managers choose the fee level competitively in equilibrium. In our model, tax deferral produces a larger asset management industry, lower tax revenue and lower social welfare.

Keywords: Mutual Fund Fees, Taxes, Retirement Savings

JEL Classification: D14, G11, G23, G28, H21, J26, J32

Suggested Citation

Landoni, Mattia and Zeldes, Stephen P., Should the Government Be Paying Investment Fees on $3 Trillion of Tax-Deferred Retirement Assets? (December 16, 2018). Available at SSRN: https://ssrn.com/abstract=3046077 or http://dx.doi.org/10.2139/ssrn.3046077

Mattia Landoni (Contact Author)

Southern Methodist University (SMU) - Finance Department ( email )

United States

Stephen P. Zeldes

Columbia Business School - Finance and Economics ( email )

3022 Broadway
Uris 825, Dept. of Finance & Economics
New York, NY 10027
United States
212-854-2492 (Phone)
212-208-4699 (Fax)

HOME PAGE: http://www.columbia.edu/~spz1

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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