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Asymmetric Taxation and Performance-Based Incentive Contracts

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  • Rainer Niemann

Abstract

This paper analyzes the effects of symmetric and asymmetric taxation on performance-based versus fixed remuneration contracts. I integrate a proportional corporation tax and a proportional wage tax into a binary principal-agent model. The wage tax increases the remuneration costs and makes the agent's employment less attractive. Thus, the principal tends to demand lower rather than higher effort or does not offer a contract at all. In contrast to the wage tax, the corporate tax is irrelevant for the optimal remuneration contract. Under asymmetric corporate taxation, the principal tends to offer contracts less frequently. Fixed remuneration contracts are penalized more heavily by asymmetric taxation than performance-based remuneration contracts.

Suggested Citation

  • Rainer Niemann, 2011. "Asymmetric Taxation and Performance-Based Incentive Contracts," CESifo Working Paper Series 3363, CESifo Group Munich.
  • Handle: RePEc:ces:ceswps:_3363
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    File URL: http://www.cesifo-group.de/DocDL/cesifo1_wp3363.pdf
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    References listed on IDEAS

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    Cited by:

    1. Voßmerbäumer, Jan, 2012. "Effizienzwirkungen einer Regulierung von Managergehältern durch das Steuerrecht," arqus Discussion Papers in Quantitative Tax Research 125, arqus - Arbeitskreis Quantitative Steuerlehre.
    2. 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.

    More about this item

    Keywords

    asymmetric taxation; loss-offset; principal-agent theory; corporate taxation; wage taxation;

    JEL classification:

    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting
    • M52 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Compensation and Compensation Methods and Their Effects

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