nep-acc New Economics Papers
on Accounting and Auditing
Issue of 2007‒01‒23
seven papers chosen by
Alexander Harin
Modern University for the Humanities

  1. Does tax simplification yield more equity and efficiency? An empirical analysis for Germany By Fuest, Clemens; Peichl, Andreas; Schaefer, Thilo
  2. Die Flat Tax: Wer gewinnt? Wer verliert? Eine empirische Analyse für Deutschland By Fuest, Clemens; Peichl, Andreas; Schaefer, Thilo
  3. Tax Morale after the Reunification of Germany: Results from a Quasi-Natural Experiment By Lars P. Feld; Benno Torgler
  4. Examining the interaction between saving and contributions to Personal Pension Plans. Evidence from the BHPS By Mariacristina Rossi
  5. Performance-vested stock options and pay-performance sensitivity By Kuang,Flora Yu; Qin,Bo
  6. Do U.S. Firms Have the Best Corporate Governance? A Cross-Country Examination of the Relation between Corporate Governance and Shareholder Wealth By Reena Aggarwal; Isil Erel; Rene M. Stulz; Rohan Williamson
  7. Eligibility of External Credit Assessment Institutions By Helena Suvova; Eva Kozelkova; David Zeman; Jaroslava Bauerova

  1. By: Fuest, Clemens; Peichl, Andreas; Schaefer, Thilo
    Abstract: This paper investigates the impact of tax simplification on various indicators of the efficiency of the tax system and on the distribution of income. The analysis is based on a simulation model (FiFoSiM) using German income tax and household survey microdata. We model tax simplification as the abolition of a set of deductions from the tax base included in the German income tax system. We find that this form of tax base simplification leads to a reduction in the use of professional tax advice, a more equitable income distribution and an increase in tax revenue. If these measures are combined with a reduction of income tax rates to preserve revenue neutrality, the effects depend on the type of rate schedule adjustment. The combination with a flat rate tax implies redistribution in favour of very high incomes, and an overall increase in income inequality. Efficiency effects in terms of changes in marginal tax rates and labor supply effects are mixed. The combination with a rate schedule adjustment which preserves the directly progressive rate schedule yields a tax reform which reduces the inequality of after tax incomes. We conclude that tax simplification may improve the efficiency of the tax system without increasing inequality of after tax income.
    Keywords: Income distribution, polarisation, tax simplification, flat tax
    JEL: D3 H2 J22
    Date: 2006
  2. By: Fuest, Clemens; Peichl, Andreas; Schaefer, Thilo
    Abstract: In der Debatte über eine Reform des deutschen Einkommensteuersystems wird immer wieder die Einführung einer Flat Rate Tax gefordert. Üblicherweise bestehen solche Vorschläge aus den Elementen Verbreiterung der Bemessungsgrundlage, Erhöhung des Grundfreibetrags und Einführung eines (relativ niedrigen) einheitlichen Grenzsteuersatzes. Flat Rate Tax-Systemen werden Vorteile in Form positiver E¢ zienzwirkungen zugesprochen. Der wichtigste Einwand besteht in den zu erwartenden Verteilungswirkungen. In diesem Beitrag wird anhand von Mikrosimulationsstudien untersucht, wie sich verschiede- ne Flat Rate Tax-Reformvarianten in Deutschland auf die Einkommensverteilung auswirken würde, und wer die Gewinner und Verlierer dieser Reformvarianten wären. Es zeigt sich, dass die Einkommensungleichheit insgesamt zunimmt. Vor allem die Mittelschicht und insbesondere abhängig Beschäftigte und Rentner und damit eine Mehrheit der Bevölkerung würden durch den Übergang zur Flat Rate Tax verlieren, während das höchste Einkommensdezil und insbe- sondere die Selbständigen besser gestellt wären.
    Keywords: Flat Tax, Einkommensverteilung, Ungleichheit, Gewinner, Verlierer
    JEL: D31 H24
    Date: 2006
  3. By: Lars P. Feld; Benno Torgler
    Abstract: This paper provides a comparison of tax morale between inhabitants of East and West Germany in its post-reunification period, using three World Values Survey/European Values Survey waves between 1990 and 1999. The setting of German reunification is particularly interesting for the analysis of tax morale as it is close to a natural experiment. Many factors can be controlled because they are similar, as, e.g., a common language, similar education systems and a shared cultural and political history prior to the separation after the Second World War. As a consequence, an East-West comparison has a methodological advantage compared to cross-country studies. Our findings show higher tax morale in East than in West Germany. However, in only 9 years after reunification, tax morale values strongly converged, especially due to a strong change in the level of tax morale in the East.
    Keywords: Tax Morale; Tax Evasion; Deterrence; Quasi-Natural Experiment
    JEL: H26 H73 D78 C93
    Date: 2007–01
  4. By: Mariacristina Rossi (University of Rome, Tor Vergata and Center for Research on Pensions and Welfare Policies, Turin)
    Abstract: This paper analyses the effects of social security reforms on saving in Britain. Following the 1986 Social Security Act, the UK pension system has partially shifted from an unfunded basis towards a partially funded basis. Under the new pension scheme, individuals are given the option of contracting out of the earning related pension scheme into a personal pension plan comparable to the IRA pension plan existing in the US. Individuals are also given the possibility of making additional contributions to their pension plan. These contributions represent an attractive form of saving in that they receive a more generous tax treatment than other conventional forms of saving. We use the BHPS dataset for the years 1991 to 2003 to investigate the interactions between voluntary additional contributions to personal pension plans (PPP) and saving in conventional forms. In particular, we test whether contributions to the PPP crowd out saving or constitute additional saving. We estimate the determinants of the amount saved in conventional forms and for retirement purposes with different estimation strategies by allowing the two choices to be correlated. According to our findings, the introduction of private pension schemes has not exhibited a crowding out effect on private saving.
    Keywords: Social Security, Saving
    Date: 2006–09
  5. By: Kuang,Flora Yu; Qin,Bo (Tilburg University, Center for Economic Research)
    Abstract: The paper investigates the incentive effects of performance-vested stock options (PVSOs) in aligning management interests with shareholder wealth. Performance targets attached to option vesting would prevent executives from receiving rewards from outcomes that are unaffected by their effort. Such targets align executive pay more closely with shareholder wealth. The degree of interest alignment is measured by pay-performance sensitivity (PPS). Using data on 4,238 executive-level observations for 1,383 executive directors in the largest 244 UK non-financial firms from 1999 to 2004, we find that the presence of PVSO schemes in executive-compensation contracts is associated with higher PPS, consistent with the idea that stronger incentives are provided by PVSOs. The empirical evidence also shows that PVSOs outperform unconditional stock options (TSOs) in providing incentives, since higher PPS is associated with the presence of PVSOs. Moreover, the results testify the role of vesting-target difficulty of PVSOs in the pay-performance relation. Specifically, difficult targets are associated with lower PPS levels, implying that too difficult targets negatively affect managers' choice of effort, that relatively lower effort is to be expected, and that the interests of managers will diverge from the interests of shareholders.
    Keywords: stock options;pay-performance sensitivity;equity incentive
    JEL: G31 G34 G39 M41
    Date: 2006
  6. By: Reena Aggarwal; Isil Erel; Rene M. Stulz; Rohan Williamson
    Abstract: We compare the governance of foreign firms to the governance of similar U.S. firms. Using an index of firm governance attributes, we find that, on average, foreign firms have worse governance than matching U.S. firms. Roughly 8% of foreign firms have better governance than comparable U.S. firms. The majority of these firms are either in the U.K. or in Canada. When we define a firm's governance gap as the difference between the quality of its governance and the governance of a comparable U.S. firm, we find that the value of foreign firms increases with the governance gap. This result suggests that firms are rewarded by the markets for having better governance than their U.S. peers. It is therefore not the case that foreign firms are better off simply mimicking the governance of comparable U.S. firms. Among the individual governance attributes considered, we find that firms with board and audit committee independence are valued more. In contrast, other attributes, such as the separation of the chairman of the board and of the CEO functions, do not appear to be associated with higher shareholder wealth.
    JEL: G30 G32 G34 G38 K22
    Date: 2007–01
  7. By: Helena Suvova; Eva Kozelkova; David Zeman; Jaroslava Bauerova
    Abstract: The Basel Committee on Banking Supervision in 1999 issued a draft New Basel Capital Accord (Basel 2). Its principles are to be incorporated into the European legislation and into the Czech banking regulations. The Standardised Approach to calculating the capital requirement for credit risk is newly based on external credit assessments (ratings). Banking regulators and supervisors have to be prepared for the process of determining eligible credit assessment institutions (ECAIs) and will have to elaborate a formal recognition procedure. This paper investigates the approaches a supervisor may apply to ECAI recognition and elaborates on the criteria of recognition. First, the paper reviews the available rating agencies on the market (including their rating penetration on the Czech market), their best practices and the experience with the use of their ratings for regulatory purposes. Second, drawing on international experience and the proposed Basel 2 rules, we outline the fundamental supervisory approaches to recognition, including the legal aspects thereof, and analyse their pros and cons and the frontiers of supervisory decision making. Third, we outline the rules for recognition, including requirements or expectations (e.g. soft limits), documentation and typical interview questions with the potential candidates. We find the CNB's approach to be in compliance with CEBS Consultative Paper CP07 (issued for public consultation in June 2005).
    Keywords: Basel capital accord, Basel II, Credit rating, default, eligibility criteria, eligibility evaluation, external credit assessment institution (ECAI), export credit agency (ECA), mapping rating grades, market acceptance of ECAIs, rating agency, recognition process
    JEL: E65 G21 G18
    Date: 2005–12

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