IDEAS home Printed from https://ideas.repec.org/a/ucp/jpemac/doi10.1086-724511.html

Redistribution with Performance Pay

Author

Listed:
  • Paweł Doligalski
  • Abdoulaye Ndiaye
  • Nicolas Werquin

Abstract

Half of the jobs in the United States feature pay for performance. We derive incidence and optimum formulas for the rate of tax progressivity and the top income tax rate when such labor contracts arise from moral hazard frictions within firms. Our first main result is that the sensitivity of the worker’s compensation to performance is roughly invariant to tax progressivity. Second, the optimal tax schedule is strictly less progressive than in standard models that treat pretax earnings risk as exogenous. Quantitatively, the welfare cost of not accounting for performance pay when choosing tax progressivity is 0.3% of consumption.

Suggested Citation

  • Paweł Doligalski & Abdoulaye Ndiaye & Nicolas Werquin, 2023. "Redistribution with Performance Pay," Journal of Political Economy Macroeconomics, University of Chicago Press, vol. 1(2), pages 371-402.
    • Handle: RePEc:ucp:jpemac:doi:10.1086/724511
    DOI: 10.1086/724511
    as

    Download full text from publisher

    File URL: http://dx.doi.org/10.1086/724511
    Download Restriction: Access to the online full text or PDF requires a subscription.
    File URL: http://dx.doi.org/10.1086/724511
    Download Restriction: Access to the online full text or PDF requires a subscription.
    File URL: https://libkey.io/10.1086/724511?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to look for a different version below or

    for a different version of it.

    Other versions of this item:

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. is not listed on IDEAS
    2. Ferey, Antoine & Haufler, Andreas & Perroni, Carlo, 2023. "Incentives, globalization, and redistribution," Journal of Public Economics, Elsevier, vol. 224(C).
    3. Dami'an Vergara, 2022. "Minimum Wages and Optimal Redistribution," Papers 2202.00839, arXiv.org, revised Dec 2022.
    4. Paweł Doligalski & Abdoulaye Ndiaye & Nicolas Werquin, 2023. "Redistribution with Performance Pay," Journal of Political Economy Macroeconomics, University of Chicago Press, vol. 1(2), pages 371-402.
    5. Louis Kaplow, 2024. "Optimal Income Taxation," Journal of Economic Literature, American Economic Association, vol. 62(2), pages 637-738, June.

    More about this item

    JEL classification:

    • D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H22 - Public Economics - - Taxation, Subsidies, and Revenue - - - Incidence

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ucp:jpemac:doi:10.1086/724511. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Journals Division (email available below). General contact details of provider: https://www.journals.uchicago.edu/JPEMA .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.