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Taxation and Regulation of Bonus Pay

Timothy Besley () and Maitreesh Ghatak ()

STICERD - Economic Organisation and Public Policy Discussion Papers Series from Suntory and Toyota International Centres for Economics and Related Disciplines, LSE

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 risktaking 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.

New Economics Papers: this item is included in nep-acc, nep-hrm and nep-reg
Date: 2011-07
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http://sticerd.lse.ac.uk/dps/eopp/eopp30.pdf (application/pdf)

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Working Paper: Taxation and Regulation of Bonus Pay (2011) Downloads
Working Paper: Taxation and regulation of bonus pay (2011) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:cep:stieop:030

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