Income Taxes and the Composition of Pay
AbstractAccording to the standard principal-agent model, the optimal composition of pay should balance the provision of incentives with the individual demand for insurance. Do income taxes alter this balance? We show that the relative share of PRP on total pay is reduced by higher average taxes, and is affected in a complex way by higher marginal tax rates. Empirical evidence based on the British Household Panel Survey, which exploits the UK 1999 Tax Reform, supports the theoretical predictions of the tax-augmented principal-agent model.
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Bibliographic InfoPaper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 2203.
Length: 28 pages
Date of creation: Jul 2006
Date of revision:
Publication status: published as 'Income Taxes and the Composition of Pay: Evidence from the British Household Panel Survey' in: Scottish Journal of Political Economy, 2011, 58 (3), 297 - 322
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Find related papers by JEL classification:
- J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods
- H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
This paper has been announced in the following NEP Reports:
- NEP-ALL-2006-07-21 (All new papers)
- NEP-PBE-2006-07-21 (Public Economics)
- NEP-PUB-2006-07-21 (Public Finance)
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- Rainer Niemann, 2011. "Asymmetric Taxation and Performance-Based Incentive Contracts," CESifo Working Paper Series 3363, CESifo Group Munich.
- Ewert, Ralf & Niemann, Reiner, 2012. "Steuern in Agency-Modellen: Mehrperioden- und Multi-Task-Strukturen," arqus Discussion Papers in Quantitative Tax Research 135, arqus - Arbeitskreis Quantitative Steuerlehre.
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