Fiscal treatment of managerial compensation - a welfare analysis

Michael Hilmer

VfS Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order from Verein für Socialpolitik / German Economic Association

Abstract: We analyze the consequences of bonus taxes, limited deductibility of bonuses from company pro ts and a corporate income tax (CIT) in a principal-agent model and explore how these tax instruments a ffect managerial incentives and how they change the design of incentive contracts used in equilibrium. Introducing bonus taxes decreases the agent's net bonus and reduces eff ort. Limited deductibility has no such e ffects. In equilibrium both instruments lead to a lower eff ort incentivized by the principal with a lower bonus when bonuses are less deductible. We find that a bonus tax can lead to an increase in bonus payments. Moreover, the model explains the welfare eff ects and distributional implications of the actions named above. Limited deductibility and bonus taxes are close substitutes and lead to a welfare loss compared to a taxation by a CIT as the CIT neither has an eff ect on incentives nor on the incentive contract. Furthermore welfare can be increased by paying a subsidy for bonus payments.

JEL-codes: H25 J33 M52 (search for similar items in EconPapers)
Date: 2013
New Economics Papers: this item is included in nep-cta
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
https://www.econstor.eu/bitstream/10419/79703/1/VfS_2013_pid_865.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:zbw:vfsc13:79703

Access Statistics for this paper

More papers in VfS Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order from Verein für Socialpolitik / German Economic Association Contact information at EDIRC.
Bibliographic data for series maintained by ZBW - Leibniz Information Centre for Economics (econstor@zbw-workspace.eu).