nep-acc New Economics Papers
on Accounting and Auditing
Issue of 2010‒07‒24
five papers chosen by
Alexander Harin
Modern University for the Humanities

  1. Do High Tax and Tax Evasion go Hand in Hand? The Non-Linear Case By Alain Trannoy; Gwenola Trotin
  2. Optimal Investment and Financial Strategies under Tax Rate Uncertainty By Alessandro Fedele; Paolo M. Panteghini; Sergio Vergalli
  3. Illiquidity and all its Friends By Jean Tirole
  4. Propuestas para mejorar el Federalismo Fiscal en Argentina: Un nuevo esquema para la distribución del Impuesto a las Ganancias By Bertello, Nicolas; Uña, Gerardo
  5. What Does the Corporate Income Tax Tax? A Simple Model without Capital By Laurence J. Kotlikoff; Jianjun Miao

  1. By: Alain Trannoy (EHESS, Greqam-Idep); Gwenola Trotin (EQUIPPE, Université Charles-de-Gaulle Lille 3)
    Abstract: This paper fully investigates how a tax rate change can affect tax evasion, under the expected utility theory hypothesis. We generalize the Allingham-Sandmo benchmark model of tax evasion, using very general non-linear specifications for the tax schedule and the fine scheme. We consider both interior and corner solutions in terms of tax evasion. When the fine is imposed on the evaded tax, we examine the robustness of Yitzhaki’s result of a positive relationship between a change in tax rate and undeclared income. When the fine is imposed on the undeclared income, we obtain conditions under which Allingham and Sandmo’s result of a inverse relationship remains valid, and particularly with DARA. The case of an endogenous audit probability is also considered.
    Keywords: Tax evasion; Non-linearity; Expected utility theory
    JEL: D81 H26 K42
    Date: 2010–07
  2. By: Alessandro Fedele (University of Brescia); Paolo M. Panteghini (University of Brescia and CESifo); Sergio Vergalli (University of Brescia and FEEM)
    Abstract: In this paper we apply a real-option model to study the effects of tax rate uncertainty on a firm's decisions. In doing so, we depart from the relevant literature, which focuses on fully equity-financed investment projects. By letting a representative firm borrow optimally, we show that debt finance not only encourages investment activities but can also substantially mitigate the effect of tax rate uncertainty on investment timing.
    Keywords: Capital Levy, Corporate Taxation, Default Risk, Real Options
    JEL: H2
    Date: 2010–06
  3. By: Jean Tirole (Toulouse School of Economics)
    Abstract: The recent crisis was characterized by massive illiquidity. This paper reviews what we know and don't know about illiquidity and all its friends: market freezes, fire sales, contagion, and ultimately insolvencies and bailouts. It first explains why liquidity cannot easily be apprehended through a single statistics, and asks whether liquidity should be regulated given that a capital adequacy requirement is already in place. The paper then analyzes market breakdowns due to either adverse selection or shortages of financial muscle, and explains why such breakdowns are endogenous to balance sheet choices and to information acquisition. It then looks at what economics can contribute to the debate on systemic risk and its containment. Finally, the paper takes a macroeconomic perspective, discusses shortages of aggregate liquidity and analyses how market value accounting and capital adequacy should react to asset prices. It concludes with a topical form of liquidity provision, monetary bailouts and recapitalizations, and analyses optimal combinations thereof; it stresses the need for macro-prudential policies.
    Keywords: Liquidity, Contagion, Bailouts, Regulation
    JEL: E44 E52 G28
    Date: 2010–06
  4. By: Bertello, Nicolas; Uña, Gerardo
    Abstract: To promote and contribute to the discussion of fiscal federalism in Argentina, this paper presents a proposal to amend the distribution of the revenue from the Income Tax between the Nation and the provinces. The proposal is based on the need to help reinvigorate the discussion on the distribution of federal resources. In recent years we have added new elements to the dynamics of fiscal federalism that in some cases reinforce problems that already exist and in some others, modify active aspects in the last and half decade. The provincial debt refinancing by the Nation after the crisis of 2001 - 2002, the changes in the fundraising composition pro to the National Government or reversion of the pension reform are examples of these changes. Given the above, this paper takes a bounded approach to the Income Tax federal distribution, in contrast to an integral reform vision of the distribution of federal resources. In practice, this approach has produced few results to push for reform, both in times of acute financial constraints, as in periods of recovery and with governments of different political signs. Income Tax, and prior to the partnership, we realize transfers to the pension system, the Suburban Fund and the ATN fund administered by the National Government. The terms of this distribution is a clear example of how changes in the economic, political and fiscal problems have deepened in the '90s for the allocation of federal resources and created new others. Virtually all such transfers are no longer justified or become outdated. First, the reversion of the pension reforms of the nineties, with the elimination of private capitalization system in late 2008 has changed the revenue structure of the pension system, reversing in part the reasons that justified the yield of part of the provinces revenue to finance it. Today, ANSES surplus contrasts with the increasing deterioration of the provincial finances. Moreover, part of the surplus of ANSES is intended to finance the National Government, which in turn provides financial assistance to provinces. This contributes to a scheme that increases the dependence of the provinces of federal transfers and lessens their predictability for policy development. To this situation has also contributed, the change in the tax structure since 2002, with a tax increase with limited partnerships, increasing Nation resources to the detriment of the provinces. Related to this, there is a fiscal situation deteriorated even more and with greater reliance on National Government funding, in the Province of Buenos Aires. Since the early '90s, recognizing a disadvantage situation in this province in the partnership scheme, it was set up Suburban Fund which was allocated 10% of the revenue from Income Tax. However, it was later established a fixed stop to this fund, which was never updated, now the Suburban Fund harms the Buenos Aires Province, because it would get more resources if the fund had a normal partnership. Finally, from the Income Tax the 2% goes to Treasury posts fund (ATN), formally created in order that the nation attend the provinces in case of emergency. This instrument is no longer relevant. On the one hand, the ATN fund accumulates resources that are not distributed by an estimated amount of $ 8,500 million. Moreover, today are financial assistance programs and other discretionary transfers the mechanism by which the National Government transfers resources to several provinces. With this in mind, we present a proposal to amend the federal distribution of Income Tax, adding resources to the provinces in general and a steal on the Province of Buenos Aires in particular. This will reduce transfers to the pension system, it eliminates the amount allocated to ATN and updating the Suburban Fund. This proposal comes under the parliamentary treatment of the extension of several major taxes, among which include the Income Tax and seeks to contribute to this debate. Additionally, and beyond this situation, the work aims to highlight some aspects that justify the restatement of fiscal federalism in Argentina, adapted to a gradual approach of reform, aligned with current political possibilities.
    Keywords: fiscal federalism; Income tax; revenue; distribution; National Budget; resources; Suburban Fund; ATN fund; transfers; pension reforms; ANSES; crisis of 2001 - 2002; surplus
    JEL: R50 R10 O10 D30 R0 O54 P10
    Date: 2009–10
  5. By: Laurence J. Kotlikoff; Jianjun Miao
    Abstract: The economics workings of the corporate income tax remain controversial. Harberger’s seminal 1962 article viewed the tax as raising the cost of capital used to produce corporate goods. But corporate goods can be and generally are made by non-corporate firms, suggesting that the corporate tax penalizes the act of incorporating, not the decision of already incorporated firms to hire capital. This paper makes this point with a simple, capital-less model featuring entrepreneurs, with risky production technologies, deciding whether or not to go public. Doing so means selling shares, which is costly and triggers the firm’s classification as a corporation subject to income taxation. But going public has an upside. It permits entrepreneurs to diversify their assets. In discouraging incorporation, the corporate tax taxes business risk-sharing, keeping more entrepreneurs private and, thus, exposed to more risk. The added risk experienced by these entrepreneurs limits their demands for labor whose costs must be paid come what may. And less demand for labor spells a lower wage. Thus, the corporate tax is, as a general rule, borne, in part, by labor. But it is borne primarily by high-skilled entrepreneurs who decide to remain incorporated despite the attendant tax liability. While it hurts high-skilled entrepreneurs and low-skilled workers, the corporate tax benefits middle-skilled entrepreneurs who remain private, but are able, thanks to the tax, to hire labor at a lower cost. The reduction in labor costs has one other key effect. It induces low-skilled entrepreneurs to set up their own risky businesses rather than work for others. This represents a second channel through which the corporate tax induces excessive business.
    JEL: H22 H31 H32
    Date: 2010–07

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