Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/313139 
Year of Publication: 
2022
Citation: 
[Journal:] International Tax and Public Finance [ISSN:] 1573-6970 [Volume:] 30 [Issue:] 4 [Publisher:] Springer US [Place:] New York, NY [Year:] 2022 [Pages:] 913-947
Publisher: 
Springer US, New York, NY
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. When governments maximize tax revenues, we show that overconfidence unambiguously reduces the bonus tax rate that governments set in the non-cooperative tax equilibrium, while increasing tax revenues. When the government objective incorporates the welfare of resident managers, however, bonus taxes also serve a corrective role and may rise in equilibrium when overconfidence is increased.
Subjects: 
Overconfidence
Bonus taxes
Tax competition
Migration
JEL: 
H20
H87
G28
Persistent Identifier of the first edition: 
Creative Commons License: 
cc-by Logo
Document Type: 
Article
Document Version: 
Published Version

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