nep-acc New Economics Papers
on Accounting and Auditing
Issue of 2006‒05‒06
nine papers chosen by
Alexander Harin
Modern University for the Humanities

  1. Tax Morale and Conditional Cooperation By Bruno S. Frey; Benno Torgler
  2. Rewarding Honest Taxpayers? Evidence on the Impact of Rewards from Field Experiments By Lars P. Feld; Bruno S. Frey; Benno Torgler
  3. Tax Evasion in Switzerland: The Roles of Deterrence and Tax Morale By Lars P. Feld; Bruno S. Frey
  4. Tax Compliance as the Result of a Psychological Tax Contract: The Role of Incentives and Responsive Regulation By Lars P. Feld; Bruno S. Frey
  5. Shareholders Should Welcome Knowledge Workers as Directors By Margit Osterloh; Bruno S. Frey
  6. How Norwegian Managers View Dividend Policy By Baker, H. Kent; Mukherjee, Tarun K.; Paskelian, Ohannes George
  7. On signalling and debt maturity choice By Lensink, Robert; Pham Thi Thu, Tra
  8. Changes in Foreign Control under Different Regulatory Climates: Multinationals in Canada By Baldwin, John R.; Gellatly, Guy; Sabourin, David
  9. The External Wealth of Nations Mark II: Revised and Extended Estimates of Foreign Assets and Liabilities, 1970-2004 By Lane, Philip R.; Milesi-Ferretti, Gian Maria

  1. By: Bruno S. Frey; Benno Torgler
    Abstract: Why so many people pay their taxes, although fines and audit probability are low, has become a central question in the tax compliance literature. A homo economicus, with a more refined motivation structure, helps us to shed light on this puzzle. This paper provides empirical evidence for the relevance of conditional cooperation, using survey data from 30 West and East European countries. We find a high correlation between perceived tax evasion and tax morale. The results remain robust after exploiting endogeneity and conducting several robustness tests. We also observe a strong positive correlation between institutional quality and tax morale.
    Keywords: tax morale; tax compliance; tax evasion; pro-social behavior; institutions
    JEL: H26 H73 D64
    Date: 2006–04
  2. By: Lars P. Feld; Bruno S. Frey; Benno Torgler
    Abstract: This paper analyzes the impact of rewards on tax compliance as an additional instrument to take into account. While social psychologists and neuroscientists have emphasized the importance of rewards, the tax compliance literature has strongly disregarded the possibilities of rewards. The use of field experiments presents an alternative “carrot” strategy for tax policy. Design mechanisms to conduct a field experiments focusing on the impact of rewards on tax compliance are discussed.
    Keywords: positive rewards; tax compliance; tax evasion; field experiments
    JEL: H26 H41 C90 D63
    Date: 2006–04
  3. By: Lars P. Feld; Bruno S. Frey
    Abstract: The traditional economic approach to tax evasion does not appear to be particularly successful in explaining the extent of tax compliance. We argue instead that a psychological tax contract which establishes a fiscal exchange between the state and the citizens shapes tax compliance to a large extent. In that respect, a case study of Switzerland is useful because the small size of the cantons and their direct democratic political systems procedurally establish a close exchange relationship between taxpayers and tax authorities. In this paper, evidence is discussed on how tax evasion and tax morale in Switzerland evolved over time. In addition, the impact of economic, legal, socio-demographic, psychological and institutional factors on Swiss tax evasion is discussed.
    Keywords: Tax Evasion; Tax Morale; Deterrence; Responsive Regulation
    JEL: H26 H73 D73 D78
    Date: 2006–04
  4. By: Lars P. Feld; Bruno S. Frey
    Abstract: In this paper, we develop the concept of a psychological tax contract that goes beyond the traditional deterrence model and explains tax morale as a complicated interaction between taxpayers and the government. Based on crowding theory, the impact of deterrence and re-wards on tax morale is discussed. As a contractual relationship implies duties and rights for each contract partner, sticking to the fiscal exchange paradigm between citizens and the state increases tax compliance. Citizens are willing to honestly declare income even if they do not receive a full public good equivalent to their tax payments as long as the political process is perceived to be fair and legitimate. At the procedural level, a friendly treatment of taxpayers by the tax office in auditing processes increases tax compliance.
    Keywords: Tax Compliance; Positive and Negative Incentives; Responsive Regulation
    JEL: H26 H73 D73 D78
    Date: 2006–04
  5. By: Margit Osterloh; Bruno S. Frey
    Abstract: The most influential approach of corporate governance, the view of shareholders supremacy does not take into consideration that the key task of modern corporations is to generate and transfer firm-specific knowledge. It proposes that, in order to overcome the widespread corporate scandals, the interests of top management and directors should be increasingly aligned to shareholder interests by making the board more responsible to shareholders, and monitoring of top management by independent outside directors should be strengthened. Corporate governance reform needs to go in another direction altogether. Firm-specific knowledge investments are, like financial investments, not ex ante contractible, leaving investors open to exploitation by shareholders. Employees therefore refuse to make firmspecific investments. To gain a sustainable competitive advantage, there must be an incentive to undertake such firm-specific investments. Three proposals are advanced to deal with this dilemma: (1) The board should rely more on insiders. (2) The insiders should be elected by those employees of the firm who are making firm-specific knowledge investments. (3) The board should be chaired by a neutral person. These proposals have major advantages: they provide incentives for knowledge investors; they countervail the dominance of executives; they encourage intrinsic work motivation and loyalty to the firm by strengthening distributive and procedural justice, and they ensure diversity on the board while lowering transaction costs. These proposals for reforming the board may help to overcome the crisis corporate governance is in. At the same time, they provide a step in the direction of a more adequate theory of the firm as a basis for corporate governance.
    Keywords: Corporate governance; shareholders; board directors; insiders; firm-specific knowledge
    JEL: D23 D83 L14 G34 M50
    Date: 2006–04
  6. By: Baker, H. Kent (American University); Mukherjee, Tarun K. (University of New Orleans); Paskelian, Ohannes George (University of New Orleans)
    Abstract: We report the results of a 2004 survey from managers of dividend-paying Norwegian firms listed on the Oslo Stock Exchange about their views on dividend policy. Specifically, we identify the most important factors in making dividend policy decisions and managers’ views about various dividend-related issues. The most important determinants of a firm’s dividend policy are the level of current and expected future earnings, stability of earnings, current degree of financial leverage, and liquidity constraints. No significant correlation exists between the overall rankings of factors influencing dividend policy between Norwegian and U.S. managers. Norwegian managers express mixed views about whether a firm’s dividend policy affects firm value. Respondents point to the possible role of dividend policy as a signaling mechanism. No support exists for the tax-preference explanation for paying dividends.
    Keywords: Dividend policy, Cash dividends
    JEL: G35
    Date: 2005–12–07
  7. By: Lensink, Robert; Pham Thi Thu, Tra (Groningen University)
    Abstract: The theoretical literature on a firm?s choice of debt maturity argues that a borrowing firm can signal its value in asymmetric information setting by borrowing short. This well-known fact is based on Flannery (1986). This paper questions the use of debt maturity as a signalling device. We demonstrate that Flannery?s (1986) signalling outcome is vulnerable on two accounts. First, the separating equilibrium established by Flannery is not driven by the incentive compatibility. Second, derivations of the separating equilibrium appear to be vulnerable due to the lack of the refinements of pooling equilibria. If correct constraints are provided, the parameter space for the separating equilibrium shrinks, moderating the signalling role of debt maturity.
    Date: 2006
  8. By: Baldwin, John R.; Gellatly, Guy; Sabourin, David
    Abstract: This paper examines the incidence of foreign control in Canadian non-financial industries. It focuses on changes in the share of assets and revenues under foreign control over a long-run period during which Canada's regulatory climate shifted from being more restrictive to more liberal in its treatment of inward foreign direct investment. These regulatory changes coincided with a retrenchment and then a resurgence in the activities of foreign multinationals in Canadian industry. We report aggregate results for non-financial industries, along with specific tabulations for the energy sector. More detailed industry tabulations are presented for the 2000-2003 period.
    Keywords: National accounts, Business enterprises, Economic conditions, Business conditions
    Date: 2006–03–23
  9. By: Lane, Philip R.; Milesi-Ferretti, Gian Maria
    Abstract: We construct estimates of external assets and liabilities for over 140 countries over the period 1970-2004. We describe our estimation methods and present some key features of the data, both at the country and at the global level. We focus in particular on trends in net and gross external positions, as well as on the composition of international portfolios, distinguishing between foreign direct investment, portfolio equity investment, foreign exchange reserves, and external debt. We also document the existence of a 'world net foreign asset discrepancy' (the stock counterpart to the world current account discrepancy) and identify the asset categories that account for this discrepancy.
    Keywords: international financial integration; net foreign assets
    JEL: F32
    Date: 2006–04

This nep-acc issue is ©2006 by Alexander Harin. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.