Citations (2)



Does Tax Policy Affect Executive Compensation? Evidence from Postwar Tax Reforms

Carola Frydman

Boston University - Department of Economics

Raven Molloy

Federal Reserve Board

February 2011

NBER Working Paper No. w16812

The trends in executive pay and labor income tax rates since the 1940s suggest a high elasticity of taxable income with respect to tax policy. By contrast, the level and structure of executive compensation have been largely unresponsive to tax incentives since the 1980s. However, the relative tax advantage of different forms of pay was small during this period. Using a sample of top executives in large firms from 1946 to 2005, we also find a small short run response of salaries, qualified stock options, and bonuses paid after retirement to changes in tax rates on labor income—even though tax rates were significantly higher and more heterogeneous across individuals in the first several decades following WWII. We explore several potential explanations for the conflicting impressions given by the long-run and short-run correlations between taxes and pay, including changes in social norms and concerns about pay equality.

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Date posted: February 28, 2011  

Suggested Citation

Frydman, Carola and Molloy, Raven, Does Tax Policy Affect Executive Compensation? Evidence from Postwar Tax Reforms (February 2011). NBER Working Paper No. w16812. Available at SSRN: http://ssrn.com/abstract=1769510

Contact Information

Carola Frydman (Contact Author)
Boston University - Department of Economics ( email )
270 Bay State Road
Boston, MA 02215
United States
Raven Molloy
Federal Reserve Board ( email )
20th Street and Constitution Avenue NW
Washington, DC 20551
United States
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