An unintentional consequence of taxation: Tax cuts and vertical pay dispersion

IF 2.2 3区管理学 Q2 BUSINESS, FINANCE Journal of Business Finance & Accounting Pub Date : 2024-04-30 DOI:10.1111/jbfa.12806

Xiaoning Song, Cen Wu, Ying Zheng

引用次数: 0

Abstract

We study the effect of tax cuts on the pay dispersion between firms’ executives and rank-and-file employees. Using the 2009 value-added tax (VAT) reform in China as a quasi-experimental setting, we find that tax cuts are associated with increased vertical pay dispersion, which is an unintentional consequence. We also find that managerial power intensifies the effect of tax cuts on vertical pay dispersion, consistent with the view that the increase in pay dispersion is due to managerial rent extraction. Furthermore, our results are not driven by executives’ higher pay-for-performance sensitivity than rank-and-file employees. In addition, we find that the VAT reform significantly increases pay dispersion driven by noneconomic factors but has no significant impact on dispersion driven by economic factors. Overall, our results support the rent-extraction channel for the effect of tax cuts on income inequality.

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来源期刊

Journal of Business Finance & Accounting BUSINESS, FINANCE-

CiteScore

4.40

自引率

17.20%

发文量

期刊介绍： Journal of Business Finance and Accounting exists to publish high quality research papers in accounting, corporate finance, corporate governance and their interfaces. The interfaces are relevant in many areas such as financial reporting and communication, valuation, financial performance measurement and managerial reward and control structures. A feature of JBFA is that it recognises that informational problems are pervasive in financial markets and business organisations, and that accounting plays an important role in resolving such problems. JBFA welcomes both theoretical and empirical contributions. Nonetheless, theoretical papers should yield novel testable implications, and empirical papers should be theoretically well-motivated. The Editors view accounting and finance as being closely related to economics and, as a consequence, papers submitted will often have theoretical motivations that are grounded in economics. JBFA, however, also seeks papers that complement economics-based theorising with theoretical developments originating in other social science disciplines or traditions. While many papers in JBFA use econometric or related empirical methods, the Editors also welcome contributions that use other empirical research methods. Although the scope of JBFA is broad, it is not a suitable outlet for highly abstract mathematical papers, or empirical papers with inadequate theoretical motivation. Also, papers that study asset pricing, or the operations of financial markets, should have direct implications for one or more of preparers, regulators, users of financial statements, and corporate financial decision makers, or at least should have implications for the development of future research relevant to such users.

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