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Investment Risk and the Tax Benefit of Deferred Compensation

32 Pages Posted: 6 Oct 2008 Last revised: 23 Jun 2010

Ethan Yale

University of Virginia School of Law

Date Written: October 6, 2008

Abstract

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.

Keywords: executive compensation, tax, tax policy, risk

JEL Classification: G34, H25, K31, K34

Suggested Citation

Yale, Ethan, Investment Risk and the Tax Benefit of Deferred Compensation (October 6, 2008). Tax Law Review, 2009; Georgetown Public Law Research No. 1279455. Available at SSRN: https://ssrn.com/abstract=1279455

Ethan Yale (Contact Author)

University of Virginia School of Law ( email )

580 Massie Road
Charlottesville, VA 22903
United States

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