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Promotion Rat Race and Public Policy

  • Geir Bjertnaes
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    This study investigates whether excess effort to climb a career ladder justifies policy interventions. The answer depends on whether the government is able to levy a higher tax burden on career workers than on non-career workers. Both a tax on top income aimed at lowering the rewards of promotion and a labour law that restricts excess effort require such a differentiation in the tax burden to improve welfare. The differentiation in tax burden prevents that the welfare gain of reducing excess effort is neutralized by the welfare cost connected to an increase in the number of career workers.

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    File URL: http://www.cesifo-group.de/portal/page/portal/DocBase_Content/WP/WP-CESifo_Working_Papers/wp-cesifo-2012/wp-cesifo-2012-04/cesifo1_wp3781.pdf
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    Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 3781.

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    Date of creation: 2012
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    Handle: RePEc:ces:ceswps:_3781
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    1. James A. Fairburn & James M. Malcomson, 2001. "Performance, Promotion, and the Peter Principle," Review of Economic Studies, Oxford University Press, vol. 68(1), pages 45-66.
    2. Lazear, Edward P & Rosen, Sherwin, 1981. "Rank-Order Tournaments as Optimum Labor Contracts," Journal of Political Economy, University of Chicago Press, vol. 89(5), pages 841-64, October.
    3. Mats Persson & Agnar Sandmo, 2005. "Taxation and Tournaments," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 7(4), pages 543-559, October.
    4. Moldovanu, Benny & Sela, Aner & Shi, Xianwen, 2005. "Contests for Status," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 139, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
    5. Jed DeVaro, 2006. "Internal promotion competitions in firms," RAND Journal of Economics, RAND Corporation, vol. 37(3), pages 521-542, 09.
    6. Michael Waldman, 2003. "Ex Ante versus Ex Post Optimal Promotion Rules: The Case of Internal Promotion," Economic Inquiry, Western Economic Association International, vol. 41(1), pages 27-41, January.
    7. Anthony Atkinson & Thomas Piketty & Emmanuel Saez, 2011. "Top Incomes in the Long Run of History," Post-Print halshs-00754557, HAL.
    8. Bognanno, Michael L, 2001. "Corporate Tournaments," Journal of Labor Economics, University of Chicago Press, vol. 19(2), pages 290-315, April.
    9. Carlsson, Fredrik & Johansson-Stenman, Olof & Martinsson, Peter, 2003. "Do You Enjoy Having More Than Others? Survey Evidence of Positional Goods," Working Papers in Economics 100, University of Gothenburg, Department of Economics.
    10. Carola Frydman & Raven S. Molloy, 2009. "Does tax policy affect executive compensation? evidence from postwar tax reforms," Finance and Economics Discussion Series 2009-30, Board of Governors of the Federal Reserve System (U.S.).
    11. repec:rje:randje:v:37:y:2006:3:p:521-542 is not listed on IDEAS
    12. Malcomson, James M, 1984. "Work Incentives, Hierarchy, and Internal Labor Markets," Journal of Political Economy, University of Chicago Press, vol. 92(3), pages 486-507, June.
    13. Landers, Renee M & Rebitzer, James B & Taylor, Lowell J, 1996. "Rat Race Redux: Adverse Selection in the Determination of Work Hours in Law Firms," American Economic Review, American Economic Association, vol. 86(3), pages 329-48, June.
    14. George Baker & Michael Gibbs & Bengt Holmstrom, 1994. "The Wage Policy of a Firm," The Quarterly Journal of Economics, Oxford University Press, vol. 109(4), pages 921-955.
    15. George Baker & Michael Gibbs & Bengt Holmstrom, 1994. "The Internal Economics of the Firm: Evidence from Personnel Data," The Quarterly Journal of Economics, Oxford University Press, vol. 109(4), pages 881-919.
    16. Sandmo, Agnar, 1994. " The Tax They Pay May Be Your Own: Promotion, Taxes and Labour Supply," Scandinavian Journal of Economics, Wiley Blackwell, vol. 96(4), pages 463-79.
    17. Frank, Robert H., 2008. "Should public policy respond to positional externalities?," Journal of Public Economics, Elsevier, vol. 92(8-9), pages 1777-1786, August.
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