Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/330791 
Year of Publication: 
2025
Citation: 
[Journal:] Journal of Business Economics [ISSN:] 1861-8928 [Volume:] 95 [Issue:] 6 [Publisher:] Springer [Place:] Berlin, Heidelberg [Year:] 2025 [Pages:] 839-869
Publisher: 
Springer, Berlin, Heidelberg
Abstract: 
This paper examines the effect of tax policy uncertainty on incentivization and managerial effort in an agency model with risk-averse principal and agent. If the agent's effort is unobservable, the agent's variable share of profit acts as a risk-sharing and incentivizing instrument. Then, a countercyclical tax base policy at the agent level or a procyclical policy at the principal level can increase the agent's variable share of profit, whose increase in turn increases the agent's effort. This theoretical finding favors a procyclical tax policy at the company level (principal) and a countercyclical one at the employee level (agent). Tax policy uncertainty in the sense of tax base risk makes this increase in effort possible and strengthens effects. Additionally, under a countercyclical tax base policy at the agent level, tax base risk at the agent level up to a certain level increases overall utility and thus total surplus.
Subjects: 
Agency model
Tax base risk
Tax policy uncertainty
Procyclical
Countercyclical
JEL: 
D86
H210
M52
Persistent Identifier of the first edition: 
Creative Commons License: 
cc-by Logo
Document Type: 
Article
Document Version: 
Published Version

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