Taxing Top CEO Incomes
Laurence Ales, Christopher Sleet
American Economic Review · 2016 · Volume 106 · Issue 11
Abstract
We use a firm-CEO assignment framework to model the market for CEO effective labor. In the model's equilibrium, more talented CEOs match with and supply more effort to larger firms. Taxation of CEO incomes affects the equilibrium pricing of CEO effective labor and, hence, spills over and affects firm profits. Absent the ability to tax profits or a direct concern for firm owners, a standard prescription for high marginal income taxes emerges. However, given such an ability or concern, the optimal marginal tax rates are much lower.
Keywords
Personal Income, Wealth, and Their Distributions, Taxation and Subsidies: Efficiency, Optimal Taxation, Personal Income and Other Nonbusiness Taxes and Subsidies, includes inheritance and gift taxes, Firm Performance: Size, Diversification, and Scope, Personnel Management, Executives, Executive Compensation, Personnel Economics: Compensation and Compensation Methods and Their Effects
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