Taxation and Regulation of Bonus Pay
AbstractWe 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.
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Bibliographic InfoPaper provided by Suntory and Toyota International Centres for Economics and Related Disciplines, LSE in its series STICERD - Economic Organisation and Public Policy Discussion Papers Series with number 030.
Date of creation: Jul 2011
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Web page: http://sticerd.lse.ac.uk/_new/publications/default.asp
Other versions of this item:
- D53 - Microeconomics - - General Equilibrium and Disequilibrium - - - Financial Markets
- D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law
- H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
This paper has been announced in the following NEP Reports:
- NEP-ACC-2011-08-09 (Accounting & Auditing)
- NEP-ALL-2011-08-09 (All new papers)
- NEP-HRM-2011-08-09 (Human Capital & Human Resource Management)
- NEP-REG-2011-08-09 (Regulation)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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