European Business Schools Librarian's Group

ESSEC Working Papers,
ESSEC Research Center, ESSEC Business School

No DR 04012: Profit-Sharing as Tax Saving and Incentive Device

Minh Chau () and François Contensou ()
Additional contact information
Minh Chau: ESSEC Business School, Postal: Avenue Bernard Hirsch - B.P. 50105, 95021 CERGY-PONTOISE CEDEX , FRANCE,
François Contensou: ESSEC Business School, Postal: Avenue Bernard Hirsch - B.P. 50105, 95021 CERGY-PONTOISE CEDEX , FRANCE

Abstract: The theory of labor contract with worker’s chosen effort level mainly rests upon the principal-agent paradigm. In many labor markets however, the principal is not as free as assumed in the standard theory, but is submitted to some binding institutional constraints. It is requested in particular to post a wage level, i.e. a non random component of compensation to which high rates of social contribution may apply. The proposed model adapts the standard analysis to situations in which tax rules and possibly predetermined profit-sharing patterns interfere with free contracting. It formalizes the two-faced aspect of profit sharing having an impact on the firm’s objective through tax saving effect and incentive effect.

Keywords: Profit-sharing; Incentives; Tax evasion

JEL-codes: J31; J33; K34

24 pages, October 2004

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