Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/226252
Authors: 
Haufler, Andreas
Nishimura, Yukihiro
Year of Publication: 
2020
Series/Report no.: 
CESifo Working Paper No. 8550
Abstract: 
We set up a simple model of tax competition for mobile, highly-skilled and overconfident managers. Firms endogenously choose the compensation scheme for managers, which consists of a fixed wage and a bonus payment in the high state. Managers are overconfident about the probability of the high state and hence of receiving the bonus, whereas firms and governments are not. In this setting we show that overconfidence (i) unambiguously increases the bonus component in the managers' compensation package and (ii) it reduces the bonus tax rate that governments set in the non-cooperative tax equilibrium. Hence overconfidence can contribute to explaining both the increasing role of bonus contracts and the fall in marginal tax rates for high-income earners.
Subjects: 
overconfidence
bonus taxes
tax competition
migration
JEL: 
H20
H87
G28
Document Type: 
Working Paper

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