Taxation, risk aversion, and the wage gaps in tournaments

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Abstract

In this paper’s tournament model, the effect of income taxes on workers’ effort depends on risk preferences. At risk neutrality and low levels of worker risk aversion effort falls with higher taxes, whereas with sufficiently high risk aversion effort increases with tax rises. In the former, firms respond to higher taxes by reducing the wage spread and increasing it in the latter. It sheds light on why top earners’ income has risen with tax reductions over the last five decades. With females being more risk averse it suggests tax reductions contribute to the CEO gender pay gap.
Original languageEnglish
Pages (from-to)834-845
Number of pages12
JournalOxford Economic Papers
Volume69
Issue number3
Early online date4 Oct 2016
DOIs
Publication statusPublished - Jul 2017

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Taxation
Tax
Risk aversion
Wage gap
Tournament
Workers
Income
Risk neutrality
Gender pay gap
Risk-averse
Chief executive officer
Risk preferences
Income tax
Wages

Keywords

  • J01
  • H31

Cite this

Taxation, risk aversion, and the wage gaps in tournaments. / Skatun, John Douglas.

In: Oxford Economic Papers, Vol. 69, No. 3, 07.2017, p. 834-845.

Research output: Contribution to journalArticle

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