Investment Risk and the Tax Benefit of Deferred Compensation
University of Virginia School of Law
October 6, 2008
Tax Law Review, 2009
Georgetown Public Law Research No. 1279455
Deferred compensation is thought to generate significant tax savings compared to current compensation in certain circumstances. The standard model used to support this conclusion does not consider investment risk and therefore overstates the tax benefit of deferred compensation significantly. This paper describes three alternative, risk-neutral approaches to measuring the tax benefit of deferred compensation. Each of these approaches avoids misclassifying increases in expected value attributable to increases in investment risk as a tax preference.
Number of Pages in PDF File: 32
Keywords: executive compensation, tax, tax policy, risk
JEL Classification: G34, H25, K31, K34
Date posted: October 6, 2008 ; Last revised: June 23, 2010
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