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The impact of taxes on competition for CEOs

Listed author(s):
  • Krenn, Peter
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    This paper tries to answer the question how taxation of corporate and individual income affects competition among firms for highly-skilled human resources like CEOs. It shows that individual income taxes can perform a substantial impact on the outcome of such a competition if marginal tax rates are different like in an international labor market. Additionally, it presents the surprising result that in a local labor market for CEOs observed gross fixed salaries should decline in the individual income tax rate. The effects of taxation in a market for CEOs is in particular an interesting topic because recent developments with respect to compensation practices of top-level managers have opened a public debate about the use of instruments for regulating compensation of those managers. The investigation follows an analytical economics-based approach by extending an LEN type model of moral hazard with elements of competition and income taxation. It investigates the impact of differential taxation on the competition between two firms for the exclusive service of a unique, highly-skilled CEO.

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    File URL: https://www.econstor.eu/bitstream/10419/111400/1/827944918.pdf
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    Paper provided by arqus - Arbeitskreis Quantitative Steuerlehre in its series arqus Discussion Papers in Quantitative Tax Research with number 190.

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    Date of creation: 2015
    Handle: RePEc:zbw:arqudp:190
    Contact details of provider: Web page: http://www.arqus.info/

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    1. Carola Frydman & Raven E. Saks, 2010. "Executive Compensation: A New View from a Long-Term Perspective, 1936--2005," Review of Financial Studies, Society for Financial Studies, vol. 23(5), pages 2099-2138.
    2. Xavier Gabaix & Augustin Landier, 2008. "Why has CEO Pay Increased So Much?," The Quarterly Journal of Economics, Oxford University Press, vol. 123(1), pages 49-100.
    3. Frydman, Carola & Molloy, Raven S., 2011. "Does tax policy affect executive compensation? Evidence from postwar tax reforms," Journal of Public Economics, Elsevier, vol. 95(11), pages 1425-1437.
    4. Peter Katuscák, 2009. "Taxes and Executive Compensation: Evidence from the 1990s," CESifo Economic Studies, CESifo, vol. 55(3-4), pages 542-568.
    5. Kevin J. Murphy & Ján Zábojník, 2004. "CEO Pay and Appointments: A Market-Based Explanation for Recent Trends," American Economic Review, American Economic Association, vol. 94(2), pages 192-196, May.
    6. Rainer Niemann, 2008. "The Effects of Differential Taxation on Managerial Effort and Risk Taking," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 64(3), pages 273-310, September.
    7. Holmstrom, Bengt & Milgrom, Paul, 1987. "Aggregation and Linearity in the Provision of Intertemporal Incentives," Econometrica, Econometric Society, vol. 55(2), pages 303-328, March.
    8. Alex Edmans & Xavier Gabaix & Augustin Landier, 2009. "A Multiplicative Model of Optimal CEO Incentives in Market Equilibrium," Review of Financial Studies, Society for Financial Studies, vol. 22(12), pages 4881-4917, December.
    9. Rosen, Sherwin, 1981. "The Economics of Superstars," American Economic Review, American Economic Association, vol. 71(5), pages 845-858, December.
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