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Bonus taxes and international competition for bank managers

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  • Gietl, Daniel
  • Haufler, Andreas

Abstract

We analyze the competition in bonus taxation when banks compensate their managers by means of fixed and incentive pay and bankers are internationally mobile. Banks choose bonus payments that induce excessive managerial risk-taking to maximize their private benefits of existing government bailout guarantees. In this setting the international competition in bonus taxes may feature a ‘race to the bottom’ or a ‘race to the top’, depending on whether bankers are a source of net positive tax revenue or inflict net fiscal losses on taxpayers as a result of incentive pay. A ‘race to the top’ becomes more likely when governments’ impose only lax capital requirements on banks, whereas a ‘race to the bottom’ is more likely when bank losses are partly collectivized in a banking union.

Suggested Citation

  • Gietl, Daniel & Haufler, Andreas, 2018. "Bonus taxes and international competition for bank managers," European Economic Review, Elsevier, vol. 110(C), pages 41-60.
  • Handle: RePEc:eee:eecrev:v:110:y:2018:i:c:p:41-60
    DOI: 10.1016/j.euroecorev.2018.08.004
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    Cited by:

    1. Gietl, Daniel, 2018. "Overconfidence and Bailouts," Rationality and Competition Discussion Paper Series 132, CRC TRR 190 Rationality and Competition.
    2. repec:eee:eecrev:v:110:y:2018:i:c:p:41-60 is not listed on IDEAS
    3. Gietl, Daniel & Haufler, Andreas, 2018. "Bonus taxes and international competition for bank managers," European Economic Review, Elsevier, vol. 110(C), pages 41-60.

    More about this item

    Keywords

    Bonus taxes; International tax competition; Migration;

    JEL classification:

    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
    • H87 - Public Economics - - Miscellaneous Issues - - - International Fiscal Issues; International Public Goods
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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