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

Southern Methodist University (SMU) - Finance Department

Stephen P. Zeldes

Columbia Business School - Finance and Economics; 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)

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

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
183
Abstract Views
1,207
rank
168,582
PlumX Metrics