Taxation and Regulation of Bonus Pay

Timothy Besley and Maitreesh Ghatak

No 8532, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: We explore the consequence for taxation and regulation of bonus pay when investors are protected by taxpayers from downside risk. The paper develops a model where workers in financial sector firms make decisions about effort and risk-taking which are influenced by the structure of bonus pay. Bailouts lead to too little effort, too much risk taking and increase inequality. We show that the optimal structure of bonuses can be implemented by a combination of a regulation on the structure of bonuses and a tax on their level.

Keywords: Taxation; Bonus; Incentives (search for similar items in EconPapers)
JEL-codes: D53 D86 H21 (search for similar items in EconPapers)
Date: 2011-08
New Economics Papers: this item is included in nep-acc, nep-bec, nep-hrm, nep-lab and nep-reg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (18)

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Working Paper: Taxation and Regulation of Bonus Pay (2011)
Working Paper: Taxation and regulation of bonus pay (2011)
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