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The Impact of Taxes on Competition for CEOs

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  • Peter Krenn

Abstract

This paper contributes to the question of how taxation of corporate profits and wages affects competition among firms for highly skilled human resources such as CEOs. Use of a theoretical model shows that wage taxes can have a substantial impact on the outcome of such a competition if marginal tax rates are different as in an international labor market. Further, the paper shows that increasing the wage tax rate unilaterally can have an ambiguous effect on observed gross compensation levels. However, in a local labor market for CEOs, observed gross fixed salaries should decline in the wage tax rate. Tax effects in a market for CEOs is a particularly 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. Furthermore, many countries around the world use tax incentives in order to facilitate immigration of highly skilled human resources. The investigation follows an analytical economics-based approach by extending an LEN model with elements of competition for scarce human resources 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.

Suggested Citation

  • Peter Krenn, 2017. "The Impact of Taxes on Competition for CEOs," European Accounting Review, Taylor & Francis Journals, vol. 26(3), pages 503-530, July.
    • Handle: RePEc:taf:euract:v:26:y:2017:i:3:p:503-530
    DOI: 10.1080/09638180.2016.1200477
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    Cited by:

    1. Rainer Niemann & Mariana Sailer, 2023. "Is analytical tax research alive and kicking? Insights from 2000 until 2022," Journal of Business Economics, Springer, vol. 93(6), pages 1149-1212, August.
    2. Niemann, Rainer & Sailer, Mariana, 2024. "Do taxes explain why firms rarely use performance-based malus contracts?," Journal of International Accounting, Auditing and Taxation, Elsevier, vol. 55(C).
    3. Thomas Bauer & Thomas Kourouxous & Peter Krenn, 2018. "Taxation and agency conflicts between firm owners and managers: a review," Business Research, Springer;German Academic Association for Business Research, vol. 11(1), pages 33-76, February.

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