Taxation and Regulation of Bonus Pay
Timothy Besley () and
Maitreesh Ghatak ()
No 8532, CEPR Discussion Papers from C.E.P.R. Discussion Papers
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: bonus; incentives; taxation (search for similar items in EconPapers)
JEL-codes: D53 D86 H21 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-acc, nep-bec, nep-hrm, nep-lab and nep-reg
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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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