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

Mattia Landoni and Stephen Zeldes

No 26700, NBER Working Papers from National Bureau of Economic Research, Inc

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.

JEL-codes: D14 G11 G23 G28 G51 H21 J26 J32 (search for similar items in EconPapers)
Date: 2020-01
New Economics Papers: this item is included in nep-age and nep-pub
Note: AG PE
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