Taxing Options: Do Ceos Respond To Favorable Tax Treatment Of Stock Options?

CEO stock option compensation increased tremendously during the 1990s. During this period, the spread between the marginal income and capital gains tax rates increased substantially, creating the potential for tax avoidance. Using ExecuComp data from 1992-2000, we estimate CEOs’ responsiveness to changes in these tax rates. Our findings show that an increase in the marginal income and a decrease in the capital gains tax rate create a significant increase in stock option compensation. Furthermore, the impact of the marginal income tax rate is more than twice that of the capital gains tax rate, which contradicts previous studies.

Tax Cuts And Interest Rate Cuts: An Empirical Comparison Of The Effectiveness Of Fiscal And Monetary Policy

Can expansionary fiscal or monetary policy stimulate the U.S. economy in light of recent events?  Using an Error-Correction-Vectorautoregression, we examine the relative effectiveness of both types of governmental stabilization policy. Unlike previous studies, we use a more general error correction vectorautoregression (ECM) approach.  Our focus is on determining the relative explanatory power of measures of monetary policy (M2 and the Federal Funds Rate) and fiscal policy (marginal income tax rates and government spending) in explaining movements in consumption, investment, and output.  Results suggest that monetary policy is relatively more powerful than fiscal policy

Do Profitable And Non-Profitable Firms Pay Executives Differently?

In the past decade, there has been a considerable increase in the use of stock options as a form of executive compensation. While agency theorists study the relationship between performance based pay and job productivity, they have not addressed whether executive compensation is impacted by a firm’s profitability. Profitable firms may pay executives more incentive-based pay, to reward their managers for a good job. In contrast, non-profitable firms may be willing to pay executives more in the way stock options to attract better managers. We find that a CEO’s probability of receiving stock options increases if he/she is employed by a profitable firm. However, the amount received by such a CEO is substantially less than the amount received by the average CEO at a non-profitable company