Should the Government be Paying Investment Fees on $3 Trillion of Tax-Deferred Retirement Assets?
Mattia Landoni and
Stephen P. Zeldes
No 26700, NBER Working Papers from National Bureau of Economic Research, Inc
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)
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