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Asymmetric Taxation and Performance-Based Incentive Contracts

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  • Rainer Niemann

Abstract

This paper analyzes the effects of symmetric and asymmetric taxation on performance-based versus fixed remuneration contracts. I integrate a proportional corporation tax and a proportional wage tax into a binary principal-agent model. The wage tax increases the remuneration costs and makes the agent's employment less attractive. Thus, the principal tends to demand lower rather than higher effort or does not offer a contract at all. In contrast to the wage tax, the corporate tax is irrelevant for the optimal remuneration contract. Under asymmetric corporate taxation, the principal tends to offer contracts less frequently. Fixed remuneration contracts are penalized more heavily by asymmetric taxation than performance-based remuneration contracts.

Suggested Citation

  • Rainer Niemann, 2011. "Asymmetric Taxation and Performance-Based Incentive Contracts," CESifo Working Paper Series 3363, CESifo.
    • Handle: RePEc:ces:ceswps:_3363
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    Cited by:

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    3. Ewert, Ralf & Niemann, Reiner, 2012. "Steuern in Agency-Modellen: Mehrperioden- und Multi-Task-Strukturen," arqus Discussion Papers in Quantitative Tax Research 135, arqus - Arbeitskreis Quantitative Steuerlehre.
    4. Voßmerbäumer, Jan & Wagner, Franz W., 2013. "Steuerwirkungen betrieblicher Entgeltpolitik," arqus Discussion Papers in Quantitative Tax Research 144, arqus - Arbeitskreis Quantitative Steuerlehre.
    5. 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.
    6. Meißner, Fabian & Schneider, Georg & Sureth, Caren, 2013. "The impact of corporate taxes and flexibility on entrepreneurial decisions with moral hazard and simultaneous firm and personal level taxation," arqus Discussion Papers in Quantitative Tax Research 141, arqus - Arbeitskreis Quantitative Steuerlehre.

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    More about this item

    Keywords

    asymmetric taxation; loss-offset; principal-agent theory; corporate taxation; wage taxation;
    All these keywords.

    JEL classification:

    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting
    • M52 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Compensation and Compensation Methods and Their Effects

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