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

61 Pages Posted: 28 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)

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Date Written: January 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.

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Suggested Citation

Landoni, Mattia and Zeldes, Stephen P., Should the Government Be Paying Investment Fees on $3 Trillion of Tax-Deferred Retirement Assets? (January 2020). NBER Working Paper No. w26700. Available at SSRN: https://ssrn.com/abstract=3525941

Mattia Landoni (Contact Author)

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

United States

Stephen P. Zeldes

Columbia Business School - Finance and Economics ( email )

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