Mario Daniele Amore, Sebastian Schwenen, 09 August 2020

Do CEOs always earn their pay? Using data on executive compensation along with accounting data for S&P 1500 firms,this column explores how swings in firm value that are unrelated to CEO actions (i.e. ‘luck’) affect CEOs’ opportunities in the labour market and the performance of firms that hire lucky CEOs. It finds that luck makes CEOs more likely to move to a new firm subject to low analyst coverage and in less competitive industries, where they receive a higher pay compared to industry peers. Hiring lucky CEOs harms firm performance due to a surge in operating costs and a poorer usage of corporate assets.

Matthew Weinzierl, 24 September 2016

Tax policy to correct inequality assumes that nobody is entitled to advantages due to luck alone. But the public largely rejects complete equalisation of 'brute luck' inequality. This column argues that there is near universal public support for an alternative, benefit-based theory of taxation. Treating optimal tax policy as an empirical matter may help us to close the gap between theory and reality.

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