Journal Article

Reforming the Taxation and Regulation of Mutual Funds: A Comparative Legal and Economic Analysis

John C. Coates

in Journal of Legal Analysis

Published on behalf of The John M. Olin Center for Law, Economics and Business at Harvard Law School with the support of the Considine Family Foundation

Volume 1, issue 2, pages 591-689
Published in print January 2009 | ISSN: 2161-7201
Published online January 2009 | e-ISSN: 1946-5319 | DOI: http://dx.doi.org/10.1093/jla/1.2.591
Reforming the Taxation and Regulation of Mutual Funds: A Comparative Legal and Economic Analysis

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Most Americans invest through mutual funds. An analysis of laws governing mutual funds shows that U.S. mutual funds are taxed less favorably and regulated more extensively than direct investments or other collective investments, including alternatives available only to the wealthy. The structure of U.S. regulation—of 70-year old prescriptive bright-line rules subject to SEC exemptions—makes success of U.S. mutual funds dependent on the resources, responsiveness, and flexibility of the SEC. The legal framework for mutual funds in the E.U. is generally as or more restrictive and inflexible than U.S. law, but competitive pressures force European supervisors to be more flexible in adopting and implementing regulations, and E.U. regulators have greater resources and are more responsive than the SEC. The paper discusses mutual fund legal reforms, including proposals to eliminate unjustified disparities in the treatment of mutual funds and their substitutes and to improve regulatory flexibility and resources.

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Subjects: Jurisprudence and Philosophy of Law

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