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

66 Pages Posted: 2 Oct 2017 Last revised: 14 Sep 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: September 7, 2019

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 benchmark and show that individuals are still indifferent but the government is not. By deferring tax revenue through traditional accounts, the government increases demand for asset management services by $3 trillion and pays $19.5 billion in corresponding annual fees. We construct a general equilibrium model with imperfect competition in the asset management industry and examine the incidence and welfare implications of the added demand. 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? (September 7, 2019). 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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