nep-acc New Economics Papers
on Accounting and Auditing
Issue of 2010‒09‒03
ten papers chosen by
Alexander Harin
Modern University for the Humanities

  1. Tax Perception : An empirical survey By Fochmann, Martin; Kiesewetter, Dirk; Blaufus, Kay; Hundsdoerfer, Jochen; Weimann, Joachim
  2. ErbSiHM 0.1 By Houben, Henriette; Maiterth, Ralf
  3. Cost of Capital with Levered Cost of Equity as the Risk of Tax Shields By Joseph Tham; Ignacio Velez Pareja
  4. Gradualism in Tax Treaties with Irreversible Foreign Direct Investment By Richard Chisik; Ronald B. Davies
  5. The impact of profit taxation on capitalized investment with options to delay and divest By Schneider, Georg; Sureth, Caren
  6. Asymmetric FDI and Tax-Treaty Bargaining: Theory and Evidence By Richard Chisik; Ronald B. Davies
  7. Structural models of the labour market and the impact and design of tax policies. By Shephard, A.J.
  8. Child Benefits in the U.S. Federal Income Tax By Kevin J. Mumford
  9. Timanco S.A.: Unpaid Taxes, Losses Carried Forward, Foreign Debt, Presumptive Income and Adjustment for Inflation: Matching DCF and EVA© By Ignacio Velez Pareja; Joseph Tham
  10. On the optimality of optimal income taxation By Felix Bierbrauer

  1. By: Fochmann, Martin; Kiesewetter, Dirk; Blaufus, Kay; Hundsdoerfer, Jochen; Weimann, Joachim
    Abstract: This paper gives a survey of the experimental literature on the perception (bias) of individuals with respect to their own tax burden and its effect on economic decisions. Six strands of literature are discussed: (1) perception of marginal tax rates, (2) influence of tax complexity on tax perception, (3) taxation and incentives to work, (4) tax salience, (5) tax morale and fairness and (6) money illusion, perceived inflation and fiscal drag. The literature discussed contains more evidence for than against a perception bias. --
    Keywords: taxation,tax perception,literature survey
    JEL: H24 H31
    Date: 2010
  2. By: Houben, Henriette; Maiterth, Ralf
    Abstract: This contribution describes ErbSiHM 0.1 which is an inheritance tax simulation model. ErbSiHM 0.1 comprises of a microsimulation model based on the data of the German Inheritance Tax Statistics 2002 and a group simulation model employing the data of the SOEP. The microsimulation model of ErbSiHM 0.1 allows for detailed analyses of revenue and distributional effects of the German inheritance tax or inheritance tax reform proposals. In addition the impact of the inheritance tax on the tax burden of particular groups of taxpayers can be detected. As the German Inheritance Tax Statistics do not include data of transfers of low-value estates a supplementary group model based on the data of the SOEP has been designed. This SOEP-based supplementary model is in particular useful to estimate revenue effects of tax reforms. --
    Date: 2010
  3. By: Joseph Tham; Ignacio Velez Pareja
    Abstract: We present the derivation of cost of capital under the assumption of risky tax shields discounted with the cost of levered equity. We show that the formulation is consistent and is derived from basic financial principles. This formulation is valid for finite cash flows and non growing perpetuities. In addition, it can be calculated without the circularity between value and discount rate.
    Date: 2010–08–22
  4. By: Richard Chisik (Department of Economics, Ryerson University, Toronto, Canada); Ronald B. Davies (Department of Economics, University of Oregon, Eugene, Oregon)
    Abstract: Bilateral international tax treaties govern the host country taxation for the vast majority of the world’s foreign direct investment (FDI). Of particular interest is the fact that the tax rates used under these treaties are gradually falling although the treaties themselves do not specify any such reductions. Since there is no outside governing agency to redress treaty violations, such reductions must be both mutually beneficial and self-enforcing. Furthermore, the optimal tax rates must be less than those initially set, otherwise no reductions would be necessary. To explain such behavior, we model a two-country setting with two-way capital flows. In particular, only part of FDI is immediately reversible. As the extent of irreversibility increases, the likelihood of Pareto optimal tax rates obtaining as a self-enforcing outcome in the initial period is reduced. More modest tax reductions, from the non-treaty levels, are still possible. These limited tax reductions generate an increase in bilateral FDI. As countries increase the stock of capital in one another, further reductions in taxes become self-enforcing. Depending on the extent of irreversibility and asymmetry, Pareto optimal tax rates may be obtainable in the long run. Thus, the amount of inbound investment a country can attract may be related to the commitment to which its outbound investment binds it. This final insight provides an additional rationale for the observed pattern of capital flows in which those countries with the greatest outbound capital flows are also those with the highest inbound flows.
    Keywords: Foreign Direct Investment, Tax Treaties, Multinational Enterprise, Gradualism, Irreversibilities, Dynamic Games.
    JEL: F21 F23 F13 C73
    Date: 2010–08
  5. By: Schneider, Georg; Sureth, Caren
    Abstract: In entrepreneurial decisions making uncertain future profits often are a main characteristics of real investment opportunities. If investors can react to uncertainty the degree of irreversibility and timing flexibility inherent in the available project should be integrated into the decision calculus. In this paper we investigate the interdependencies of effects from profit taxation and real options. We model an investment decision including an option to invest and an option to abandon. We show that increasing the tax rate can lead to paradoxical tax effects, i.e. may foster an investor's willingness to invest into a capitalized investment. Instead, if we abstract from the possibility to abandon the investment object such paradoxical effect cannot be identified. Determining the after-tax value of the option to enter the investment project with and without an abandonment option we receive a critical cash flow cutoff level. We find that the value of the option to abandon depends on the tax rate and the amount of periodical cash flows. The option value can be increasing or decreasing in the tax rate. We find scenarios with paradoxical tax effects and show that the observed paradoxical effects are due to the presence of the real abandonment option itself. This finding contributes to the stream of literature that explains potential sources of paradoxical tax effects. The generated decision rules are helpful for investors facing risky investment opportunities and for discussing the economic impact of tax reforms. Furthermore, we highlight the overwhelming importance of integrating taxes in typically applied valuation approaches. --
    Keywords: investment decisions,real options,tax effects,timing flexibility,,uncertainty
    JEL: H25 H21
    Date: 2010
  6. By: Richard Chisik (Department of Economics, Ryerson University, Toronto, Canada); Ronald B. Davies (Department of Economics, University of Oregon, Eugene, Oregon)
    Abstract: Tax treaties are often viewed as a mechanism for eliminating tax competition, however this approach ignores the need for bargaining over the treaty?s terms. This paper focuses on how bargaining can affect the withholding taxes set under the treaty. In a simple framework, we develop hypotheses about patterns in treaty tax rates. A key determinant for these patterns is the relative size of bilateral foreign direct investment (FDI) activity. In plausible situations, more asymmetric countries will negotiate treaties with higher tax rates. This theory is then tested using 1992 data from U.S. bilateral tax treaties. Overall, the data supports the prediction that greater asymmetric FDI activity increases the negotiated tax rates.
    Keywords: Foreign Direct Investment, Tax Treaties, Multinational Corporations, Bargaining, Withholding Taxes.
    JEL: F23 H25 K34
    Date: 2010–08
  7. By: Shephard, A.J.
    Abstract: This dissertation is concerned with the estimation of structural models of the labour market and the application of these models in both evaluating policy reforms, and exploring their implications for taxation design. The programme that is at the centre of much of the empirical exploration in this thesis is the British Working Families’ Tax Credit (WFTC), which during its lifetime, provided the main form of in-work support for lower income families with children. The first chapter of this thesis estimates a discrete choice hours of work model using data from before and after the introduction of WFTC. To the extent that behavioural responses to tax reforms are informative about preferences, it uses the estimated model directly to explore problems related to the optimal design of the tax and transfer system. It derives new theoretical results and empirically explores the extent to which the tax authorities may wish to condition the tax schedule on age of children. Given the use of hours contingent payments in the UK tax credit system, it also investigates the desirability of including a measure of hours of work in the tax base. The second and third chapters of this thesis firstly develop the methodology, and then consider how our view of programmes such as WFTC is affected once the presence of labour market frictions and the importance of job search activity is acknowledged. In doing so, it greatly extends the empirical equilibrium job search literature. By introducing the monopsonistic behaviour of firms, it considers how these firms may optimally adjust their wages following the introduction of programmes which encourage work, such as WFTC. The equilibrium impact of the reform on a range of outcomes for both WFTC-eligible and non-eligible workers is assessed.
    Date: 2010–07–28
  8. By: Kevin J. Mumford
    Abstract: This paper examines changes in, and interactions between, the major components of the U.S. federal tax code that provide substantial child benefits, including stimulus payments that depend on children. The focus is on creating a measure of total child tax benefit by income level, tax filing status, number of children, and year. From this measure, we learn that child tax benefits have more than doubled in real terms since the early 1990s and that low-income families receive larger child tax benefits than high income families for a first or second child, while the reverse is true for a third or fourth child. This paper also provides a case study of a tax policy change that lacked the intended consequences due to interactions between the child-benefit components of the tax code. Finally, this paper considers a comparison of child tax benefits to estimates of the cost of raising children.
    Date: 2010–01
  9. By: Ignacio Velez Pareja; Joseph Tham
    Abstract: There are methods to match value added approaches (Residual Income Method, RIM and Economic Value Added, EVA) with discounted cash flow methods, DCF. In this note we use a real life case from an emerging country to illustrate the matching, with complexities such as unpaid taxes, losses carried forward, foreign exchange debt, presumptive income and inflation adjustments to the Financial Statements. In all methods we use market values to calculate the discount rates. We stress what have been said before: for a single period, RI or EVA does not measure value. Hence we include cash flow expectations and market values in the calculation of discount rates and values.
    Date: 2010–08–22
  10. By: Felix Bierbrauer (Max Planck Institute for Research on Collective Goods, Bonn)
    Abstract: The Mirrleesian model of income taxation restricts attention to simple allocation mechanism with no strategic interdependence, i.e., the optimal labor supply of any one individual does not depend on the labor supply of others. It has been argued by Piketty (1993) that this restriction is substantial because more sophisticated mechanisms can reach first-best allocations that are out of reach with simple mechanisms. In this paper, we assess the validity of Piketty's critique in an independent private values model. As a main result, we show that the optimal sophisticated mechanism is a simple mechanism, or, equivalently, a Mirrleesian income tax system.
    Keywords: Optimal Income Taxation, Mechanism Design
    JEL: D82 H21 D86
    Date: 2010–04

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