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Corporate Tax Breaks and Executive Compensation†

Corporate Tax Breaks and Executive Compensation† AbstractI analyze the effect of two corporate tax breaks, bonus depreciation and the Domestic Production Activities Deduction (DPAD), on executive compensation in publicly traded US firms. I find both tax breaks significantly increase executive compensation. For every dollar a firm benefits from the tax breaks, compensation of the firm’s top five highest-paid executives increases by $0.17 to $0.25. The tax breaks increase compensation primarily in firms with weaker governance structures, suggesting the compensation response is driven by executive rent extraction. (JEL D22, G34, H25, M12, M52) http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png American Economic Journal Economic Policy American Economic Association

Corporate Tax Breaks and Executive Compensation†

American Economic Journal Economic Policy , Volume 15 (3) – Aug 1, 2023
41 pages

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Publisher
American Economic Association
Copyright
Copyright © 2023 © American Economic Association
ISSN
1945-7731
DOI
10.1257/pol.20210155
Publisher site
See Article on Publisher Site

Abstract

AbstractI analyze the effect of two corporate tax breaks, bonus depreciation and the Domestic Production Activities Deduction (DPAD), on executive compensation in publicly traded US firms. I find both tax breaks significantly increase executive compensation. For every dollar a firm benefits from the tax breaks, compensation of the firm’s top five highest-paid executives increases by $0.17 to $0.25. The tax breaks increase compensation primarily in firms with weaker governance structures, suggesting the compensation response is driven by executive rent extraction. (JEL D22, G34, H25, M12, M52)

Journal

American Economic Journal Economic PolicyAmerican Economic Association

Published: Aug 1, 2023

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