nep-acc New Economics Papers
on Accounting and Auditing
Issue of 2010‒05‒22
eight papers chosen by
Alexander Harin
Modern University for the Humanities

  1. The Shrinking Tax Preference for Pension Savings: An Analysis of Income Tax Changes, 1985-2007 By Gary Burtless; Eric Toder
  2. Tax Morale and Compliance Behavior: First Evidence on a Causal Link By Halla, Martin
  3. An Empirical Study on Audit Expectation Gap: Role of Auditing Education in Bangladesh. By Rehana , Fowzia
  4. Do governments tax agglomeration rents? By Hyun-Ju Koh; Nadine Riedel
  5. Tax Evasion and Swiss Bank Deposits By Niels Johannesen
  6. Tax audit impact on voluntary compliance By Niu, Yongzhi
  7. Tax Evasion, the Underground Economy and Financial Development By Keith Blackburn; Niloy Bosey; Salvatore Capasso
  8. Main drivers of the ECB financial accounts and ECB financial strength over the first 11 years By Olivier Vergote; Werner Studener; Ioannis Efthymiadis; Niall Merriman

  1. By: Gary Burtless; Eric Toder
    Abstract: The value of the tax preference for pensions depends on the marginal tax schedule and on the tax treatment of income from assets held outside a pension account. We examine the change over time in the value of pension investing, accounting for changes in the tax schedule and in the treatment of equity and bond income. We find that changes in U.S. tax law, especially the treatment of equity income, have led to sizeable changes in the value of the pension tax preference. On balance the value of the pension tax preference to worker-savers is modestly lower than it was in the mid-1980s and substantially lower than it was in the late 1980s.
    Date: 2010–04
  2. By: Halla, Martin (University of Linz)
    Abstract: Recent literature on tax evasion emphasizes the importance of moral considerations to explain compliance behavior. As a consequence scholars aim to identify factors that shape this so-called tax morale. However, the causal link between tax morale and actual compliance behavior is not established yet. Exploiting exogenous variation in tax morale – given by the inherited part of tax morale of American-born from their ancestors' country of origin – our instrumental variable analysis provides first evidence on a causal effect of tax morale on the size of the underground production.
    Keywords: tax morale, tax evasion, tax compliance, underground production
    JEL: A13 O17 H26 Z13 C81
    Date: 2010–04
  3. By: Rehana , Fowzia
    Abstract: Abstract Audit expectation gap is the difference between what auditors actually do and what third parties think auditors do or should do in conducting the audit practice. Conflicting views have been expressed regarding the role of auditing education in narrowing this gap. This study has been carried out to investigate whether there is evidence that the provision of auditing subject as part of business degree programmes contributes to narrowing that part of the audit expectation gap which results from a misunderstanding of audit regulations.
    Keywords: Keywords: Auditor; Audit expectation gap; Auditing education.
    JEL: I21
    Date: 2010–05–14
  4. By: Hyun-Ju Koh (University of Munich); Nadine Riedel (Oxford University CBT & CESifo Munich)
    Abstract: Using the German local business tax as a testing ground, we empirically investigate the impact of firm agglomeration on municipal tax setting behavior. The analysis exploits a rich data source on the population of German firms to construct detailed measures for the communities' agglomeration characteristics. The findings indicate that urbanization and localization economies exert a positive impact on the jurisdictional tax rate choice which confirms predictions of the theoretical New Economic Geography (NEG) literature. Further analysis suggests a qualification of the NEG argument by showing that a municipality's potential to tax agglomeration rents depends on its firm and industry agglomeration relative to neighboring communities. To account for potential endogeneity problems, our analysis exploits long-lagged population and infrastructure variables as instruments for the agglomeration measures.
    Keywords: Agglomeration rents, corporate taxation, regional differentiation
    JEL: H73 R12
    Date: 2010
  5. By: Niels Johannesen (Department of Economics, University of Copenhagen)
    Abstract: Bank deposits in jurisdictions with banking secrecy constitute an effective tool to evade taxes on interest income. A recent EU reform reduces the scope for this type of tax evasion by introducing a source tax on interest income earned by EU residents in Switzerland and several other jurisdictions with banking secrecy. In this paper, we estimate the impact of the source tax on Swiss bank deposits held by EU residents while using that non-EU residents were not subject to the tax to apply a natural experiment methodology. We find that the 15% source tax caused Swiss bank deposits of EU residents to drop by more than 40% with most of the response occurring in two quarters immediately before and after the source tax was introduced. The estimates imply an elasticity of Swiss deposits with respect to the net-of-source-tax-rate of around 2.75. The estimated elasticity is used to evaluate the efficiency properties of the tax. Given the large responsiveness of tax evaders, we find that the tax is associated with a very significant deadweight loss and that the 35% tax rate scheduled to apply from 2011 is considerably above the revenue maximizing rate
    Keywords: tax evasion; capital taxation; tax competition; savings directive
    Date: 2010–05
  6. By: Niu, Yongzhi
    Abstract: This study examines the tax audit impact on voluntary compliance. It is different from those in the literature in several ways. First, models were built exclusively for investigating the voluntary compliance behavior shifts after a firm is audited. Second, apart from the theoretical approach and laboratory experiment approach used in the literature, this study applied the difference-in-differences non-experimental approach. Third, historical population data of a New York State economic sector were used in this study instead of experimental data or randomly selected sample data often used in the literature. The results of both Ordinary Least Squares (OLS) and Time Series Cross Section (TSCS) autoregressive modeling methods are presented. The results of both methods suggest that after an audit, a firm would report a higher sales growth rate. The TSCS approach shows that in the year of the audit, a typical firm would report a sales growth rate which is 2.63 percentage points higher than a firm that was not audited. The percentage would decline by a rate of 1/3 each year thereafter. The findings suggest that the audit productivity derived in many research papers, where only the direct audit collections are considered, may be underestimated. The results of this research may provide policy makers with extra incentives to strengthening the audit efforts to generate more revenues.
    Keywords: tax; audit; impact; voluntary compliance; difference-in-differences;
    JEL: H29 H26
    Date: 2010–05–11
  7. By: Keith Blackburn; Niloy Bosey; Salvatore Capasso
    Abstract: We study the relationship between the underground economy and financial development in a model of tax evasion and bank intermediation. Agents with heterogenous skills seek loans in order to undertake risky investment projects. Asymmetric information between borrowers and lenders implies a menu of loan contracts that induce self-selection in a separating equilibrium. Faced with these contracts, agents choose how much of their income to declare by trading off their incentives to offer collateral against their disincentives to comply with tax obligations. The key implication of the analysis is that the marginal net bene?t of income disclosure increases with the level of ?financial development. Thus, in accordance with empirical observation, we establish the result that the lower is the stage of such development, the higher is the incidence of tax evasion and the greater is the size of the underground economy.
    Date: 2010
  8. By: Olivier Vergote (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main); Werner Studener (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main); Ioannis Efthymiadis (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main); Niall Merriman (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main)
    Abstract: This paper analyses the main drivers of the ECB’s balance sheet and profit and loss account over the first 11 years of the ECB’s existence. Furthermore, the paper assesses the financial strength of the ECB. As monetary policy operations are normally conducted by national central banks under the impulse and instructions from the ECB, the Eurosystem balance sheet is the primary reference for the analysis of Eurosystem monetary policy operations. Three main drivers of the balance sheet and profit and loss account are identified. Firstly, financial market developments and portfolio management decisions imply changes in the value of the foreign reserve and own funds portfolios, which represent a substantial part of the balance sheet (with the share of own funds becoming increasingly larger over the period under review). At the same time, the profit and loss account depends to an important degree on interest income and expenses, realised gains and losses, and write-downs on these portfolios. Secondly, strong banknote demand has gradually increased the size of the balance sheet since the euro changeover in 2002. Banknotes in circulation also provide a strong base for seigniorage income, which is an important item of the profit and loss account. Thirdly, the liquidity-providing operations in foreign currency, which the Eurosystem has undertaken since 2007 in response to the financial crisis, increased significantly the size of the ECB’s (and the Eurosystem’s) balance sheet. In terms of income and expenses, these operations were rather immaterial at the level of the ECB, although the income generated was substantial at the Eurosystem level. The ECB has remained financially strong over the 11-year period. Factors that support the financial position are strong legislative provisions on e.g. independence and income, the use of financial buffers, seigniorage as a reliable income source and an effective loss-coverage mechanism. The main risk stems from adverse financial market developments, in particular low interest rates and depreciating foreign reserve currencies, implying security price and currency write-downs. JEL Classification: E58, E42, M41
    Keywords: central banking, central bank balance sheet, financial accounts, financial strength
    Date: 2010–05

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