Doina Maria Radulescu

The Influence of Labor Taxes on the Migration of Skilled Workers

This paper investigates empirically the role of taxes on labor for the stock of expatriates and the migration flows of skilled workers. Given the increasing mobility of labour, especially of high-skilled people and expatriates, it is interesting to see to what extent labour income taxes and social security contributions determine migration flows. We collect data on personal income tax profiles for 49 economies and the year 2002. In particular, we determine the component of labor taxes which is borne by employers and the one that is borne by employees, following the OECD’s Taxing Wages Approach. For the latter, we calculate the progressivity of personal income tax rates between the average wage and five times the average wage. This may be interpreted as the tax progression which is relevant for well-paid workers. Then, we use the personal income tax variables to estimate their effect on bilateral stocks of expatriates into OECD countries and the migration of skilled workers into these countries. Personal income tax rates turn out to have a robust negative effect on cross-border flows of skilled workers in the OECD.

The Effects of a Bonus Tax on Manager Compensation and Welfare

This paper analyses the implications of a currently publicly debated issue, namely the introduction of a bonus tax. We shed light on the effects of the bonus tax on compensation components and study its incidence. We use the Principal Agent model within a two-country framework and consider two main scenarios. In the first scenario the firm cannot relocate managers between countries whereas in the second scenario relocation possibilities exist. Our findings show that the effort based compensation component always rises in the country introducing the tax such that the optimal contracts are tilted towards more effort based pay. Moreover, the bonus tax negatively affects profits and dividends and thus the incidence falls on the firm’s shareholders. With no relocation possibilities, the country that does not introduce such a tax will be worse off in terms of welfare, as the dividend income accruing to its residents declines. Accordingly, the bonus tax can be interpreted as a transfer from the worldwide shareholders to the government levying the tax. However, the welfare results may be reversed when manager relocation is an alternative. In this case, welfare in the country introducing the tax is lower than in the no relocation scenario, while the country that does not levy a bonus tax might even gain in welfare terms.

The Role of Tax Depreciation for Investment Decisions: A Comparison of European Transition Countries

This study compares incentive effects of various tax depreciation methods currently adopted in European transition economies. In these countries, straight-line, geometric-degressive, and accelerated depreciation measures are quite popular, in combination with different corporate tax rates. Their generosity is determined on the basis of Samuelsons true economic depreciation. For this purpose, the present value model is applied under the particular consideration of different financial structures. In this context, the traditional Modigliani-Miller theorem for capital structure is revisited. Furthermore, the aspect of inflation is integrated into the model. The central issue is that the historical cost accounting method generally applied for the calculation of the corporate tax base causes fictitious profits in inflationary phases that are also taxed. Therefore, in an inflationary period, generous tax depreciation provisions do not promote private investment as designed, but partly compensate such additional tax burdens caused by inflation.

Labor Taxation and Foreign Direct Investment

In this paper, we analyze the implications of the effective taxation of labor for profits and, hence, the decisions made by multinational enterprises concerning the location of their headquarters. If a higher employee‐borne tax burden reduces manager effort, it should also negatively affect firm profits and the location of the headquarters. We compile data on personal income tax profiles for 52 economies and the year 2002 at different moments of the distribution of gross wages. Our findings suggest that higher employee‐borne labor taxes are less conducive to the location of headquarters and foreign direct investment stocks in a given host economy.

The Taxation of Bonuses and its Eect on Executive Compensation and Risk Taking - Evidence from the UK Experience z

This paper explores the reaction of compensation components awarded to directors of UK nancial institutions following the temporary adoption of the bonus payroll tax in December 2009. Excessive bonuses are blamed for encouraging risk taking and are regarded as one of the pull factors of the nancial crisis. The British government attempted to reduce bonuses and accordingly corporate risk-taking by means of a special tax on cash-based bonuses. Using a comprehensive dataset on executive compensation we show that the introduction of the bonus tax decreased the cash bonuses awarded to directors by about 40%, accompanied however by a simultaneous increase in other compensation components leaving total compensation unaected.

Heterogeneous Beliefs and the Demand for D&O Insurance by Listed Companies

This paper introduces a new rationale for the existence of “Directors’ and Officers’” (D&O) insurance. We use a model with volatile stock markets where shareholders design compensation schemes that incentivize managers to stimulate short-term increases in stock prices that do not maximize long run stock market value. We show that D&O insurance provides a convenient instrument for the initial shareholders of a company to take advantage of differences in beliefs between insiders and outsiders in capital markets. The empirical results support the idea that both the insurance coverage and the premium are higher in the presence of new shareholders and volatile markets. The results prove robust in various empirical model specifications.

Do Stricter Migration Policies Deter FDI

Combining both academic and practitioner perspectives, this book provides authoritative insights into the integration of European labour markets against the background of increasing international labour mobility.