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

60 Pages Posted: 2 Oct 2017 Last revised: 21 Jan 2020

See all articles by Mattia Landoni

Mattia Landoni

Federal Reserve Banks - Federal Reserve Bank of Boston

Stephen P. Zeldes

Columbia University - Columbia Business School, Finance; National Bureau of Economic Research (NBER)

Multiple version iconThere are 2 versions of this paper

Date Written: January 12, 2020

Abstract

Under standard assumptions, both individuals and the government are indifferent between traditional tax-deferred retirement accounts and “front-loaded” (Roth) accounts. When we add investment fees to this benchmark, individuals are still indifferent but the government is not. We estimate that tax deferral increases demand for asset management services by $3 trillion, causing the government to pay $20.7 billion in corresponding annual fees. In a general equilibrium model with asset management services as differentiated products, we examine the incidence and welfare implications of the added demand. Tax deferral in our model produces a larger asset management industry, higher taxes, and lower social welfare.

Keywords: Mutual Fund Fees, Taxes, Retirement Savings

JEL Classification: D14, G11, G23, G28, G51, 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? (January 12, 2020). Available at SSRN: https://ssrn.com/abstract=3046077 or http://dx.doi.org/10.2139/ssrn.3046077

Mattia Landoni (Contact Author)

Federal Reserve Banks - Federal Reserve Bank of Boston ( email )

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Stephen P. Zeldes

Columbia University - Columbia Business School, Finance ( email )

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212-208-4699 (Fax)

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

National Bureau of Economic Research (NBER)

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