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The response of deferred executive compensation to changes in tax rates

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  • Gorry, Aspen
  • Hassett, Kevin A.
  • Hubbard, R. Glenn
  • Mathur, Aparna

Abstract

Given the increasing use of stock options in executive compensation, we examine how taxes influence the choice of compensation and document that income deferral is an important margin of adjustment in response to tax rate changes. To account for this option in the empirical analysis, we explore deferral by estimating how executives' choice of compensation between current and deferred income depends on changes in tax policy. Our empirical results suggest a significant impact of taxes on the composition of executive compensation.

Suggested Citation

  • Gorry, Aspen & Hassett, Kevin A. & Hubbard, R. Glenn & Mathur, Aparna, 2017. "The response of deferred executive compensation to changes in tax rates," Journal of Public Economics, Elsevier, vol. 151(C), pages 28-40.
    • Handle: RePEc:eee:pubeco:v:151:y:2017:i:c:p:28-40
    DOI: 10.1016/j.jpubeco.2015.08.003
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    2. Aspen Gorry & Glenn Hubbard & Aparna Mathur, 2021. "The Elasticity of Taxable Income in The Presence of Intertemporal Income Shifting," National Tax Journal, University of Chicago Press, vol. 74(1), pages 45-73.
    3. Chakraborti, Rajdeep & Dahiya, Sandeep & Ge, Lei & Gete, Pedro, 2024. "A model of managerial compensation, firm leverage and credit stimulus," Journal of Financial Stability, Elsevier, vol. 72(C).

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    More about this item

    Keywords

    Deferred income; Executive compensation; Tax policy; Elasticity of taxable income;
    All these keywords.

    JEL classification:

    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
    • H32 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Firm
    • J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods

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