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Corporate Tax Breaks and Executive Compensation

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  • Eric Ohrn

Abstract

I analyze the effect of two corporate tax breaks, bonus depreciation and the Domestic Production Activities Deduction (DPAD), on executive compensation in publicly traded US firms. I find both tax breaks significantly increase executive compensation. For every dollar a firm benefits from the tax breaks, compensation of the firm's top five highest-paid executives increases by $0.17 to $0.25. The tax breaks increase compensation primarily in firms with weaker governance structures, suggesting the compensation response is driven by executive rent extraction.

Suggested Citation

  • Eric Ohrn, 2023. "Corporate Tax Breaks and Executive Compensation," American Economic Journal: Economic Policy, American Economic Association, vol. 15(3), pages 215-255, August.
    • Handle: RePEc:aea:aejpol:v:15:y:2023:i:3:p:215-55
    DOI: 10.1257/pol.20210155
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    More about this item

    JEL classification:

    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • M12 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Personnel Management; Executives; Executive Compensation
    • M52 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Compensation and Compensation Methods and Their Effects

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