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The Effects of a Bonus Tax on Manager Compensation and Welfare

  • Doina Radulescu

This paper analyses the implications of a bonus tax for compensation components and firm profits, and studies its incidence as well as welfare implications. Using a principal-agent model with endogenous or exogenous reservation wages, we show how the effort-based compensation component changes in the country introducing the tax. Moreover, with exogenous reservation wages, the bonus tax negatively affects profits and dividends such that the incidence falls on the firm's shareholders. With endogenous reservation wages, the results are largely similar.

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Article provided by Mohr Siebeck, Tübingen in its journal FinanzArchiv.

Volume (Year): 68 (2012)
Issue (Month): 1 (March)
Pages: 1-16

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Handle: RePEc:mhr:finarc:urn:sici:0015-2218(201203)68:1_1:teoabt_2.0.tx_2-z
DOI: 10.1628/001522108X631998
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  1. Emmanuel Saez & Joel Slemrod & Seth H. Giertz, 2012. "The Elasticity of Taxable Income with Respect to Marginal Tax Rates: A Critical Review," Journal of Economic Literature, American Economic Association, vol. 50(1), pages 3-50, March.
  2. Thomas Philippon & Ariell Reshef, 2009. "Wages and Human Capital in the U.S. Financial Industry: 1909-2006," NBER Working Papers 14644, National Bureau of Economic Research, Inc.
  3. Brian J. Hall & Jeffrey B. Liebman, 2000. "The Taxation of Executive Compensation," NBER Chapters, in: Tax Policy and the Economy, Volume 14, pages 1-44 National Bureau of Economic Research, Inc.
  4. Jon Gruber & Emmanuel Saez, 2000. "The Elasticity of Taxable Income: Evidence and Implications," NBER Working Papers 7512, National Bureau of Economic Research, Inc.
  5. Peter Katuscák, 2009. "Taxes and Executive Compensation: Evidence from the 1990s," CESifo Economic Studies, CESifo, vol. 55(3-4), pages 542-568.
  6. Christelle Viauroux & Barnali Gupta, 2009. "Is Tax sharing Optimal? An Analysis in a Principal-Agent Framework," UMBC Economics Department Working Papers 09-105, UMBC Department of Economics.
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