nep-acc New Economics Papers
on Accounting and Auditing
Issue of 2006‒04‒22
eight papers chosen by
Alexander Harin
Modern University for the Humanities

  1. Starving the Beast? Intra-Generational Conflict and Balanced Budget Rules By Dirk Niepelt
  2. Foreign and Domestic Firms in Colombia: By Peter Rowland
  3. Dissecting dividend decisions: some clues about the effects of dividend taxation from recent UK reforms By Steve Bond; Michael Devereux; Alexander Klemm
  4. Tax Increment Financing Growth in Iowa By Swenson, David A.; Eathington, Liesl
  5. Optimal Inflation Targeting under Alternative Fiscal Regimes By Pierpaolo Benigno; Michael Woodford
  6. Inspection Intensity and Market Structure By Stephan Marette
  7. The Capital Structure of Multinational Companies Under Tax Competition By Paolo Panteghini
  8. Discrete Investment and Tax Competition when Firms shift Profits By Sven Stöwhase

  1. By: Dirk Niepelt (Study Center Gerzensee)
    Abstract: A balanced budget requirement does not only prevent fiscal policy makers from smoothing tax distortions but also affects their preferred choice of government spending. The paper analyzes the conditions under which groups opposed to government spending might want to implement a balanced budget requirement in order to induce the government to spend less. It shows that relaxing a balanced budget requirement need not be associated with higher government spending.
    Date: 2005–10
  2. By: Peter Rowland
    Abstract: This paper studies foreign and domestic firms in Colombia and, in particular, whether these firms behave differently. The study uses a dataset containing the 2003 balance sheets and income statements for some 7,001 firms. The dataset was obtained from the Superintendencia de Sociedades. The study concludes that foreign and domestic firms differ in a number of aspects. Foreign firms tend to have a larger total asset turnover than domestic firms; they are more leveraged than domestic firms; and they tend to have a lower net-profit margin than domestic firms. However, these results are not conclusive . When the dataset is broken down by sector, the results are much less clear. When analysing external debt, foreign firms do, nevertheless, tend to hold almost four times as much external debt as domestic firms of the same size. Foreign firms also tend to import more.
    Date: 2006–02–01
  3. By: Steve Bond (Institute for Fiscal Studies and Nuffield College, Oxford); Michael Devereux (Institute for Fiscal Studies and University of Warwick); Alexander Klemm (Institute for Fiscal Studies)
    Abstract: We present empirical evidence which suggests that a big increase in dividend taxation for UK pension funds in July 1997 affected the form in which some UK companies chose to make dividend payments, but otherwise had limited effects on both the level of dividend payments and the level of investment. These findings are consistent with a version of the 'new view' of dividend taxation. We also identify a group of firms whose dividend choices are difficult to reconcile with (stock market) value maximisation.
    Date: 2005–08
  4. By: Swenson, David A.; Eathington, Liesl
    Abstract: Tax increment financing (TIF) is a mechanism authorized by Iowa law allowing local governments, primarily cities, to capture the taxes collected on property valuation growth in a specified district. The use of TIF authority among Iowa's cities is extremely popular. In fiscal 1991, there were 746 different TIF districts or projects in Iowa. By fiscal 1997 that number had increased to 1,014, and by fiscal 2006, it had increased to 2,358, a 133 percent increase in a nine year period. More cities are using TIF authority, there are many more TIF projects than there were a decade ago, and the amount of statewide property taxable valuation that is sequestered within TIF districts and therefore not available to the general funds of all local governments has also grown strongly over the years. This report analyzes a decade of changes in TIF usage in Iowa.
    Date: 2006–04–10
  5. By: Pierpaolo Benigno; Michael Woodford
    Abstract: Standard discussions of flexible inflation targeting as an optimal monetary policy abstract completely from the consequences of monetary policy for the government budget. But at least some of the countries now adopting inflation targeting have substantial difficulty in controlling fiscal imbalances, so that the additional strains resulting from strict control of inflation are of substantial concern, and some (notably Sims 2005) have argued that inflation targeting can even be counterproductive under some fiscal regimes. Here, therefore, we analyze welfare-maximizing monetary policy taking explicit account of the consequences of monetary policy for the government budget, and under a variety of assumptions about the nature of the fiscal regime. The paper contrasts the optimal monetary policies under three alternative assumptions about fiscal policy: (i) the case in which little distortion is required to raise additional government revenue, and the fiscal authority can be relied upon to ensure intertemporal government solvency [the implicit assumption in standard analyses]; (ii) the case in which only distorting sources of revenue exist, but distorting taxes are adjusted optimally; and (iii) the case in which tax rates cannot be expected to change in response to a change in monetary policy [the problematic case emphasized by Sims]. In both of cases (ii) and (iii), it is optimal for monetary policy to allow the inflation rate to respond to fiscal developments (and the optimal responses to other shocks are somewhat different than in the classic analysis, which assumes case (I)). Nonetheless, optimal monetary policy can still be implemented through a form of flexible inflation targeting, and it remains critical, even in the most pessimistic case (case (iii)), that inflation expectations (beyond some very short horizon) not be allowed to vary in response to shocks.
    JEL: E52 E63
    Date: 2006–04
  6. By: Stephan Marette (Center for Agricultural and Rural Development (CARD); Food and Agricultural Policy Research Institute (FAPRI))
    Abstract: An investigation of financing an inspection policy while allowing the enforcement of a market regulation is described. A simple model shows that the intensity of controls depends on the market structure. Under a given number of firms, the per-firm probability of controls is lower than one, since firms' incentive to comply with regulation holds under positive profits. In this case, a lump-sum tax is used for limiting distortions coming from financing with a fixed fee. Under free entry, the per-firm probability of controls is equal to one, and only a fixed fee that prevents excess entry is used to finance inspection.
    Keywords: inspection policies, market regulation, regulatory funding.
    Date: 2005–10
  7. By: Paolo Panteghini
    Abstract: This article studies the relationship between debt policies of multinational companies (MNCs) and governments' tax strategies. In the first part, it is shown that the ability to shift income from high to low-tax countries affects MNCs' financial choices. In the second part we show how MNCs' financial decisions can affect the tax strategies of two governments competing to attract income. Furthermore we show that, for reasonable levels of risk aversion, the use of an equally weighted portfolio is surprisingly consistent with an expected utility maximizing behavior.
  8. By: Sven Stöwhase
    Abstract: In this paper, we model the tax setting game between two revenue maximizing countries which compete for the location of a single production plant owned by a multinational firm. We introduce the possibility that the multinational can shift a fraction of its profits out of the country where the production plant is located. In this framework, it is investigated how a change in the costs of profit shifting affects equilibrium tax rates. We show that in most cases, equilibrium tax rates of the two countries will be higher under profit shifting than without. Unless profit shifting does not become too easy, the strategic adjustment of profit tax rates will typically harm the multinational firm.
    Keywords: tax competition, profit shifting, multinational enterprises, discrete investment
    JEL: F23 H25 H32
    Date: 2006–04–12

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