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Cover of: The Effects of a Bonus Tax on Manager Compensation and Welfare
Doina Radulescu

The Effects of a Bonus Tax on Manager Compensation and Welfare

Section: Articles
Volume 68 (2012) / Issue 1, pp. 1-16 (16)
Published 09.07.2018
DOI 10.1628/001522112X631998
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  • 10.1628/001522112X631998
Summary
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 principalagent 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.