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Taxation and regulation of bonus pay

Timothy Besley () and Maitreesh Ghatak ()

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

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.

JEL-codes: J1 (search for similar items in EconPapers)
Date: 2011-07
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http://eprints.lse.ac.uk/58192/ Open access version. (application/pdf)

Related works:
Working Paper: Taxation and Regulation of Bonus Pay (2011) Downloads
Working Paper: Taxation and Regulation of Bonus Pay (2011) Downloads
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