Bonus taxes and international competition for bank managers

Event Date: 15 June 2016

Speaker: Andreas Haufler, University of Munich

Location: Strathclyde Business School, Cathedral Wing (CW) 404b

Time: 4.15 pm

This paper analyses the competition in bonus taxation when banks compensate their managers by means of incentive pay and bankers are internationally mobile.  Bonus taxes make incentive pay more costly for national banks and lead to an outflow of managers, lower effort and less risk-taking in equilibrium. The international competition in bonus taxes may feature a `race to the bottom', or a `race to the top', depending on whether bankers exert a positive or a negative fiscal value on their home government. The latter can arise when governments bail out banks in the case of default, and bankers take excessive risks as a result of incentive pay.

Published: 5 May 2016