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Contribution Details

Type Working Paper
Scope Discipline-based scholarship
Title Incentive effects of bonus taxes in a principal-agent model
Organization Unit
Authors
  • Helmut Max Dietl
  • Martin Grossmann
  • Markus Lang
  • Simon Wey
Language
  • English
Institution University of Zurich
Series Name UZH Business Working Paper Series
Number 313
ISSN 2296-0422
Number of Pages 29
Date 2012
Abstract Text Several countries have implemented bonus taxes for corporate executives in response to the financial crisis of 2007-2010. Using a principal-agent model, this paper investigates the incentive effects of bonus taxes by analyzing the agent's and principal's behavior. Specifically, we show how bonus taxes affect the agent's incentives to exert effort and the principal's decision regarding the composition of the compensation package (fixed salary and bonus rate). We find that, surprisingly, a bonus tax can increase the bonus rate and decrease the fixed salary. In addition, a bonus tax can induce the principal to pay higher bonuses even though the agent's effort always decreases.
Other Identification Number merlin-id:8052
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