nep-acc New Economics Papers
on Accounting and Auditing
Issue of 2006‒11‒25
nine papers chosen by
Alexander Harin
Modern University for the Humanities

  1. The "Flat Tax(es)": Principles and Evidence By Kevin Kim; Ricardo Varsano; Michael Keen
  2. How Successful is the Dual Income Tax? Evidence from the Finnish Tax Reform of 1993 By Pirttilä, Jukka; Selin, Håkan
  3. Green Taxes and Double Dividends in a Dynamic Economy By Gerhard Glomm; Daiji Kawaguchi; Facundo Sepulveda
  4. Tax Incentives and Household Portfolios: A Panel Data Analysis By Sule Alan; Søren Leth-Petersen
  5. Analyzing Balance Sheet Vulnerabilities in a Dollarized Economy - The Case of Georgia By Andreas Billmeier; Johan Mathisen
  6. Towards a Theory of the Credit-Risk Balance Sheet By Josep Vallverdu Calafell; Antonio Somoza Lopez; Soledad Moya Gutierrez
  7. Towards a Theory of the Credit-Risk Balance Sheet (II). The Evolution of its Structure By Josep Vallverdu Calafell; Antonio Somoza Lopez; Soledad Moya Gutierrez
  8. User cost of capital with delayed investment grants By Jorge Navas; Jesus Marin-Solano
  9. Capital Flows to Central and Eastern Europe By Gian Maria Milesi-Ferretti; Philip R. Lane

  1. By: Kevin Kim; Ricardo Varsano; Michael Keen
    Abstract: One of the most striking tax developments in recent years, and one that continues to attract considerable attention, is the adoption by several countries of a form of "flat tax." Discussion of these quite radical reforms has been marked, however, more by assertion and rhetoric than by analysis and evidence. This paper reviews experience with the flat tax, seeking to redress the balance. It stresses that the flat taxes that have been adopted differ fundamentally, and that empirical evidence on their effects is very limited. This precludes simple generalization, but several lessons emerge: there is no sign of Laffer-type behavioral responses generating revenue increases from the tax cut elements of these reforms; their impact on compliance is theoretically ambiguous, but there is evidence for Russia that compliance did improve; the distributional effects of the flat taxes are not unambiguously regressive, and in some cases they may have increased progressivity, including through the impact on compliance; adoption of the flat tax has not resolved common challenges in taxing capital income; and it may have strengthened, not weakened, the automatic stabilizers. Looking forward, the question is not so much whether more countries will adopt a flat tax as whether those that have will move away from it.
    Keywords: Flat tax , tax reform , income tax ,
    Date: 2006–10–11
  2. By: Pirttilä, Jukka (Labour Institute for Economic Research); Selin, Håkan (Department of Economics)
    Abstract: Dual income tax systems have become increasingly popular; yet, relatively little is <p> known about the consequences of implementing such tax systems. This paper uses a representative panel of taxpayers from the 1993 Finnish tax reform to measure how overall taxable income and the relative shares of capital income and labour income reacted to the reform. The Finnish tax reform appears to be particularly suitable for analysing the effect of separating labour and capital income tax bases. The reform radically reduced the marginal tax rates on capital income to some, but not all, taxpayers, while the taxation of labour income was not reformed at the same time. We find that the reform led to a small positive impact on overall taxable income, but part of the positive response was probably offset by income shifting among the self-employed.
    Keywords: Taxable income; income shifting; dual tax system
    JEL: C21 H21 H31
    Date: 2006–11–09
  3. By: Gerhard Glomm (Indiana University Bloomington); Daiji Kawaguchi (Hitotsubashi University); Facundo Sepulveda (Universidad de Santiago de Chile)
    Abstract: This paper examines a revenue neutral green tax reform along the lines of the Double Dividend hypothesis. Using a dynamic general equilibrium model calibrated to the US economy, we find that increasing gasoline taxes and using the revenue to reduce capital income taxes does indeed deliver both types of welfare gains: from higher consumption of market goods (an efficiency dividend), and from a better environmental quality (a green dividend), even though in the new steady state environmental quality may worsen. We also find that, given the available evidence on how much households are willing to pay for improvements in air quality, the size of the green dividend is very small in absolute magnitude, and much smaller than the efficiency dividend.
    Keywords: Green taxes, Double Dividends, Capital Accumulation, Welfare
    JEL: E6 H2
    Date: 2006–11
  4. By: Sule Alan; Søren Leth-Petersen
    Abstract: This paper investigates the responsiveness of household portfolios to tax incentives by exploiting a substantial tax reform that altered after-tax returns and cost of debt for a large number of households. An extraordinary panel data set that covers two years before and after the reform is used for the analysis. Our empirical findings suggest that households reshuffle their balance sheets in the case of a partial deductibility phase-out. In particular, heavily taxed, interest-bearing assets are used to pay off mortgage debt. Furthermore, we find that taxes have a significant impact on the structure of household portfolios even after controlling for unobserved heterogeneity.
    Keywords: Household portfolios, taxation, panel data, natural experiment
    JEL: G11 H31
    Date: 2006–10
  5. By: Andreas Billmeier; Johan Mathisen
    Abstract: Balance-sheet analysis (BSA) complements traditional flow-oriented macroeconomic analysis by gauging mismatches in aggregate and sectoral balance sheets of an economy. Enabled by recent progress in data availability, this paper applies BSA to Georgia, focusing on currency mismatches. In reviewing developments over the last five years, the paper finds that the still-high level of dollarization continues to create financial vulnerabilities, but that the overall level of currency mismatch has fallen and that liquidity problems are unlikely, in part owing to a strengthening of sectoral buffers, hedges, and insurance against shocks. Policy recommendations include accumulating reserves, strengthening securities markets, enhancing banking supervision, and maintaining a flexible exchange rate.
    Keywords: Balance sheet analysis , BSA , Georgia , vulnerabilities , currency mismatch , Dollarization , Georgia , Bank supervision , Flexible exchange rates , Exchange rate regimes ,
    Date: 2006–07–28
  6. By: Josep Vallverdu Calafell; Antonio Somoza Lopez; Soledad Moya Gutierrez (Universitat de Barcelona)
    Abstract: This article designs what it calls a Credit-Risk Balance Sheet (the risk being that of default by customers), a tool which, in principle, can contribute to revealing, controlling and managing the bad debt risk arising from a companys commercial credit, whose amount can represent a significant proportion of both its current and total assets. To construct it, we start from the duality observed in any credit transaction of this nature, whose basic identity can be summed up as Credit = Risk. Credit is granted by a company to its customer, and can be ranked by quality (we suggest the credit scoring system) and risk can either be assumed (interiorised) by the company itself or transferred to third parties (exteriorised). What provides the approach that leads to us being able to talk with confidence of a real Credit-Risk Balance Sheet with its methodological robustness is that the dual vision of the credit transaction is not, as we demonstrate, merely a classificatory duality (a double risk-credit classification of reality) but rather a true causal relationship, that is, a risk-credit causal duality. Once said Credit-Risk Balance Sheet (which bears a certain structural similarity with the classic net asset balance sheet) has been built, and its methodological coherence demonstrated, its properties static and dynamic are studied. Analysis of the temporal evolution of the Credit-Risk Balance Sheet and of its applications will be the object of subsequent works.
    Keywords: bad debts, business risk, commercial credit, credit, credit information, credit management, credit risk, credit-risk balance sheet, insolvency, risk
    JEL: M10 M20 M41
    Date: 2006
  7. By: Josep Vallverdu Calafell; Antonio Somoza Lopez; Soledad Moya Gutierrez (Universitat de Barcelona)
    Abstract: This article has an immediate predecessor, upon which it is based and with which readers must necessarily be familiar: Towards a Theory of the Credit-Risk Balance Sheet (Vallverdu, Somoza and Moya, 2006). The Balance Sheet is conceptualised on the basis of the duality of a credit-based transaction; it deals with its theoretical foundations, providing evidence of a causal credit-risk duality, that is, a true causal relationship; its characteristics, properties and its static and dynamic characteristics are analyzed. This article, which provides a logical continuation to the previous one, studies the evolution of the structure of the Credit-Risk Balance Sheet as a consequence of a businesss dynamics in the credit area. Given the Credit-Risk Balance Sheet of a company at any given time, it attempts to estimate, by means of sequential analysis, its structural evolution, showing its usefulness in the management and control of credit and risk. To do this, it bases itself, with the necessary adaptations, on the by-now classic works of Palomba and Cutolo. The establishment of the corresponding transformation matrices allows one to move from an initial balance sheet structure to a final, future one, to understand its credit-risk situation trends, as well as to make possible its monitoring and control, basic elements in providing support for risk management.
    Keywords: credit-risk balance sheet, bad debts, risk, insolvency, commercial credit, transformation matrix, probabilities matrix, credit information, business risk, credit risk, credit management
    JEL: M10 M41 M20
    Date: 2006
  8. By: Jorge Navas; Jesus Marin-Solano (Universitat de Barcelona)
    Abstract: The usual assumption when considering investment grants is that grant payments are automatic when investments are undertaken. However, evidence from case studies shows that there can exist some time lag until funds are received by granted firms. In this paper the effects of delays in grant payments on the optimal investment policy of the firm are analyzed. It is shown how these delays lead not only to a higher financing cost but to an effective reduction in the investment grant rate, and in some cases, how benefits from investment grants could be canceled due to interactions with tax effects.
    Keywords: delayed grant payments, user cost of capital
    JEL: C61 D92 H32
    Date: 2006
  9. By: Gian Maria Milesi-Ferretti; Philip R. Lane
    Abstract: We examine the evolution of the net external asset positions of Central and Eastern Europe (CEEC) countries over the past decade, with a strong emphasis on the composition of their international balance sheets. We assess the extent of their international financial integration, compared with the advanced economies and other emerging markets, and highlight the salient features of their external capital structure in terms of the relative importance of FDI, portfolio equity, and external debt. In addition, we briefly describe the country and currency composition of their external liabilities. Finally, we explore the implications of the accumulated stock of external liabilities for future trade and current account balances.
    Keywords: trade balance , rates of return , net external position , FDI , Capital flows , Eastern Europe , Balance of trade , Current account , Foreign direct investment ,
    Date: 2006–08–15

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