nep-acc New Economics Papers
on Accounting and Auditing
Issue of 2008‒06‒27
seven papers chosen by
Alexander Harin
Modern University for the Humanities

  1. Coming Closer? Tax Morale, Deterrence and Social Learning after German Unification By Lars P. Feld; Benno Torgler; Bin Ding
  2. Should All Capital Goods of Governments be Recognised as Assets in Financial Accounting? By J. CHRISTIAENS; J. ROMMEL; A. BARTON; P. EVERAERT
  3. Earnings Quality and Ownership Structure: The Role of Private Equity Sponsors By Sharon Katz
  4. Intangible Capital and Productivity: An Exploration on a Panel of Italian Manufacturing Firms By Maria Elena Bontempi; Jacques Mairesse
  5. Optimal Tax Design and Enforcement with an Informal Sector By Robin Boadway; Motohiro Sato
  6. Corporate Taxes, Profit Shifting and the Location of Intangibles within Multinational Firms By Dischinger, Matthias; Riedel, Nadine
  7. Energy Tax Incentives and the Alternative Minimum Tax By Curtis Carlson; Gilbert E. Metcalf

  1. By: Lars P. Feld; Benno Torgler; Bin Ding
    Abstract: The paper explores whether a social learning model helps explain the observed conformity and compliance with social norms after the unification of Germany. We compare tax morale, (the willingness to pay taxes), between inhabitants of East and West Germany during the post-unification period, using three World Values Survey/European Values Survey waves between 1990 and 1999. German unification is of particular interest in analysing tax morale since it is close to a quasi-natural experiment. Factors such as a common language, similar education systems and a shared cultural and political history prior to the separation after the Second World War can be controlled because they are similar. Our findings indicate that the social learning model employed in this study helps to predict the development of tax morale over time. It is clear that tax morale values converged within a mere nine years after unification, due largely to a strong change in the level of tax morale in the East. Thus, the paper contributes to the literature that attempts to explain how norms arise, how they are maintained and how they are changed.
    Keywords: Tax Morale, Social Learning, Conformity, Convergence Process, Deterrence, Quasi-Natural Experiment
    JEL: H26 H73 D78 C93
    Date: 2008–06–16
    Abstract: Although accrual accounting has become increasingly more popular in many governments over recent years, some issues remain unresolved. Previous literature questioned whether non-business-like governmental assets can be adequately capitalized. Whereas these studies mostly focussed on specific types of assets, such as infrastructure, military assets or heritage assets, this paper expands these views by taking a holistic approach to their treatment. Because such specific types of assets share fundamental characteristics, they could be called “specific governmental assets”. The analysis distinguishes between business-like government assets used in provision of public services and “specific governmental assets” which provide their services directly to the public, such as public art galleries, museums and parklands. It is argued that GAAP definitions of assets cannot be applied to the public sector for business-like assets without modification to allow for the replacement of cash generation for the owning entity by service provision to the public and not to the government as owner. However this amended definition of assets does not embrace “specific governmental assets” because these assets provide their services directly to public users of them, and the assets cannot normally be valued in financial terms because they have been removed from business-like markets by government decision. The paper highlights the problems caused by the misapplication of business accounting techniques to the public sector.
    Keywords: capital assets, New Public Management, governmental accounting, public goods, governmental assets, recognition
    Date: 2008–03
  3. By: Sharon Katz
    Abstract: This study explores how firms' ownership structures affect their earnings quality and long-term performance. Focusing on a unique sample of private firms for which there is financial data available in the years before and after their initial public offering (IPO), I differentiate between those that have private equity sponsorship (PE-backed firms) and those that do not (non-PE-backed firms). The findings indicate that PE-backed firms generally have higher earnings quality than those that do not have PE sponsorship, engage less in earnings management and report more conservatively both before and after the IPO. Further, PE-backed firms that are majority-owned by PE sponsors exhibit superior long-term stock price performance after they go public. These results stem from the professional ownership, tighter monitoring, and reputational considerations exhibited by PE sponsors.
    JEL: G0 G24 G3 M1 M41
    Date: 2008–06
  4. By: Maria Elena Bontempi; Jacques Mairesse
    Abstract: The paper examines the size and productivity of total intangible capital relative to total tangible capital for a large panel of Italian Manufacturing firms. In the analysis, we decompose total intangibles in two different ways: in intangibles expensed in firms' current accounts (as usually considered in empirical studies) versus intangible capitalized in firms' balance sheets (usually not considered); and in "intellectual capital" (i.e. R&D expenditures, and patenting and related costs) versus "customer capital" (i.e., advertising expenditure, and trademarks and related costs). We systematically assess the robustness of our results by using different specifications of the production functions implying different elasticities of substitution between tangible and intangible capital, and comparing different panel data estimates. Our results underscore that firms' accounting information on intangible investments is genuinely informative, showing that intangible capital and its different components are at least as productive as tangible capital.
    JEL: C23 C52 D24
    Date: 2008–06
  5. By: Robin Boadway (Queen's University); Motohiro Sato (Hitotsubashi University)
    Abstract: An optimal commodity tax approach is taken to compare trade taxes and VATs when some commodities are produced informally. Trade taxes apply to all imports and exports, including intermediate goods while the VAT applies only to sales by the formal sector and imports. The VAT can achieve production efficiency within the formal sector, but unlike the trade tax regime, it cannot indirectly tax pure profits. Making the size of the informal sector endogenous in each regime is potentially decisive. The ability of the government to change the size of the informal sector through costly enforcement may also tip the balance in favor of the VAT.
    Keywords: informal sector, optimal taxation, value-added tax, trade taxes
    JEL: H21 H26 O17
    Date: 2008–06
  6. By: Dischinger, Matthias; Riedel, Nadine
    Abstract: Intangible assets are one major source of profit shifting opportunities due to a highly intransparent transfer pricing process. Our paper argues that multinational enterprises (MNEs) optimize their profit shifting strategy by locating shifting–relevant intangible property at affiliates with a low statutory corporate tax rate. Using panel data for European MNEs and controlling for unobserved time–constant heterogeneity between affiliates, we find that the lower a subsidiary’s tax rate relative to other affiliates of the multinational group the higher is its level of intangible asset investment. This effect is statistically and economically significant, even after controlling for subsidiary size and accounting for a dynamic intangible investment pattern.
    Keywords: corporate taxation; multinational enterprise; profit shifting; intangible assets; micro level data
    JEL: H25 F23 H26 C33
    Date: 2008–06
  7. By: Curtis Carlson; Gilbert E. Metcalf
    Abstract: We take a first look at limitations on the use of energy-related tax credits contained in the General Business Credit (GBC) due to limitations within the regular corporate income tax as well as the AMT. Between 2000 and 2005, firms were unable to use all energy-related tax credits due to GBC limitations in the regular tax. The AMT has a smaller but still pronounced impact on the ability of firms to use these credits. Finally, we provide some illustrative calculations to demonstrate how the AMT can lead to very different levelized costs of producing electricity from a wind power project.
    JEL: H20 H23 Q48
    Date: 2008–06

This nep-acc issue is ©2008 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.