Corporate Taxation and Corporate Governance

• Applicant: Dr. Michael Stimmelmayr
• Subject Area: Economic Policy, Applied Economics
• Term: from 2010 to 2011
• Project identifier: Deutsche Forschungsgemeinschaft (DFG) - Project number 190055647

Public finance economists have intensively discussed the economic effects of taxation but they have almost completely ignored the possibility of agency problems in their analyses. Vice versa, agency problems associated with corporate governance have been predominantly analysed by business and financial economists, who mostly abstract from taxes. Consequently, the link between taxation and corporate governance has been widely neglected until recently even though there seem to be several important and well profound linkages between taxation and corporate governance. The understanding of the interplay between tax incentives and managerial behaviour has also particularly important implications for actual tax policy as managerial resource dissipation harms firm productivity in various ways and therewith economic growth. The aim of the research project is to shed light on different mechanism explaining the impact of corporate and capital income taxes on the severeness of the principal agent problem, i.e. the misalignment of interests, between shareholders (principal) and managers (agents) and to provide a sound theoretical underpinning for the different modes of interaction between taxation and corporate governance problems. Since the interaction between taxation and corporate governance is manifold and appears via various different direct or indirect mechanisms, this topic offers a wide range of interesting and highly relevant research questions. The two specific problems are considered within the research project. 1. The influence of deductibility provisions for the cost of finance on managerial incentives in multinational enterprises. 2. The impact of the double taxation of corporate profits on optimal managerial contracting (unconditional wage payments vs. incentive pay) to curb managerial opportunism.

• DFG Programme: Research Fellowships
• International Connection: Denmark
• Host: Professor Dr. Marko Köthenbürger