nep-acc New Economics Papers
on Accounting and Auditing
Issue of 2010‒09‒11
six papers chosen by
Alexander Harin
Modern University for the Humanities

  1. Communication of companies with their surroundings - the manipulation of information and information asymmetry By Bojańczyk, Mirosław
  2. Resolving the financial crisis: are we heeding the lessons from the Nordics? By Claudio Borio; Bent Vale; Goetz von Peter
  3. Why the Henry Review Fails on Family Tax Reform By Patricia Apps
  4. Measures aimed at mitigating pro cyclical effects of the Capital Requirements Framework: counter cyclical capital buffer proposals By Ojo, Marianne
  5. Housing Subsidies and the Tax Code: The Case of Mortgage Credit Certificates By Greulich, Erica; Quigley, John M.
  6. Are Income and Consumption Taxes Ever Really Equivalent? Evidence from a Real-Effort Experiment with Real Goods By Blumkin, Tomer; Ruffle, Bradley; Ganun, Yosef

  1. By: Bojańczyk, Mirosław
    Abstract: Creative accounting, the bankruptcy of many companies, and ongoing litigations made rapid rebuilding of investor relations imperative. Growing importance of institutional investors, who have high information needs, also impacted this process. Thus, the needs for communication with investors and reducing information asymmetry problems have become key issues in the capital markets. The traditional model of reporting was based largely on information relating to past events (financial accounting). Commonly, there was inadequate consideration of non-financial information impacting the development of goodwill in the future. Some information was published with considerable delay. This facilitated the use of confidential information by those who had previous access to it.
    Keywords: information assymetry; investment advisers; credit rating; aggressive accounting; confidential information; international accounting standards; financial crises;
    JEL: G14 G15 E44 D82 G30
    Date: 2010–07–30
  2. By: Claudio Borio (Bank for International Settlements); Bent Vale (Norges Bank (Central Bank of Norway)); Goetz von Peter (Bank for International Settlements)
    Abstract: How does the management and resolution of the current crisis compare with the response of the Nordic countries in the early 1990s, widely regarded as exemplary? We argue that, while intervention has been prompter, the measures taken so far remain less comprehensive and in-depth. In particular, the cleansing of balance sheets has proceeded more slowly, and less attention has been paid to reducing excess capacity and avoiding competitive distortions. In general, policymakers have given higher priority to sustaining aggregate demand in the short term than to encouraging adjustment in the financial sector and containing moral hazard. We argue that three factors largely explain this outcome: the more international nature of the crisis; the complexity of the instruments involved; and, hardly appreciated so far, the effect of accounting practices on the dynamics of the events, reflecting in particular the prominent role of fair value accounting (and mark to market losses) in relation to amortised cost accounting for loan books. There is a risk that the policies followed so far may delay the establishment of the basis for a sustainably profitable and less risk-prone financial sector.
    Keywords: Crisis management and resolution, principles for successful resolution, Nordic countries, fair value and amortised cost accounting, mark to market losses
    JEL: G21 G28
    Date: 2010–08–31
  3. By: Patricia Apps
    Abstract: While acknowledging the importance of fairness and the need to avoid creating disincentives in the design of tax reform, the Henry Review recommends a simplified Personal Income Tax and child payments withdrawn on a single family income test. This paper shows that the proposed reforms would consolidate the existing family tax system, which clearly fails in terms of both fairness and disincentives. In the early 1980’s Australia had a highly progressive individual income tax and universal family payments. Since then family income tests on child payments and tax cuts at high income levels have transformed the system into one of joint taxation with the highest marginal rates on low and average wage two-earner families. Under the Review’s recommendations the same families would continue to face the highest tax rates. Data presented indicate strong negative effects on productivity and the tax base due to disincentive effects on labour supply and saving over the life cycle. The paper proposes a return to a strongly progressive individual based income tax and universal family payments.
    Keywords: Taxation, Family payments, Time allocation, Labour supply, Saving, Life cycle
    JEL: D91 H21 H31 J13 J16 J22
    Date: 2010–08
  4. By: Ojo, Marianne
    Abstract: As well as highlighting the importance of introducing counter cyclical capital buffers, this paper draws attention to the need for greater focus on “more forward looking provisions”, as well as provisions which are aimed at addressing losses and unforeseen problems attributed to “maturity transformation of short-term deposits into long term loans.” Whilst the need for forward looking provisioning has been echoed by some authorities on the literature, the paper also adds weight to the argument through its attempt to link such an argument to the ever increasing prominence assumed by liquidity risks – since liquidity also contributes to pro cyclicality. “The complex response of financial institutions to deteriorating market conditions - which to a large extent, is attributed to liquidity shortfalls which reflected on and off balance sheet maturity mismatches and excessive levels of leverage, has resulted in an increasingly important role for liquidity provided by central banks in the funding of bank balance sheets.” Owing to such increased importance of liquidity risks, this paper also attempts to highlight why the Basel Committee’s Counter Cyclical Buffer Proposal – a response to the recent financial crisis (which to a significant extent, focuses on banking sector capital requirements), should also take greater account of more forward looking provisions. In so doing, it draws attention to the importance of coupling forward looking provisions (as well as other measures) with counter cyclical charges and why this provides a better alternative to the mere introduction of counter cyclical capital charges.
    Keywords: counter cyclical buffers; liquidity risks; pro cyclicality; capital; loan loss provisions; financial crises; bank; regulation
    JEL: D53 K2 E32
    Date: 2010–08–27
  5. By: Greulich, Erica; Quigley, John M.
    Abstract: The most significant U.S. housing subsidy programs are funded by tax expenditures through the Internal Revenue Code (IRC). Beyond the subsidy to homeownership provided to all owner occupants through the personal income tax, the IRC provides additional subsidies to specific groups of homeowners. The Mortgage Revenue Bond (MRB) program permits lower levels of government to issue tax-exempt debt, using the proceeds to supply mortgages at below-market interest rates to deserving households. States are also permitted to issue and distribute Mortgage Credit Certificates (MCCs) which entitle recipient homeowners to claim a tax credit for some portion of the mortgage interest paid rather than the tax deduction claimed by other homeowners. This paper documents the wide variations in reliance upon MCCs and MRBs across the United States and the emergence of Mortgage Credit Certificates as the largest housing program administered by the state of California. The paper provides an economic analysis of the MCC program using micro data on program recipients in California during the period 1996-1998. We estimate the extent and distribution of MCC subsidies across income and demographic groups, measuring the dollar amount of federal subsidies and their effects upon the user cost of residential capital and the demand price of housing. We analyze the geographic incidence of MCC subsidies across neighborhoods of varying socio-demographic composition and deprivation. Finally, we note important differences in the administrative and programmatic costs of MCCs and MRBs, suggesting that there are clear reasons to favor Mortgage Credit Certificates as a means of subsidizing deserving households.
    Keywords: housing subsidy, tax policy, tax credit
    Date: 2009–10–08
  6. By: Blumkin, Tomer (Ben Gurion University); Ruffle, Bradley (Ben Gurion University); Ganun, Yosef (Ben Gurion University)
    Abstract: The public finance literature demonstrates the equivalence between consumption and labor-income (wage) taxes. We introduce an experimental paradigm in which individuals make real labor-leisure choices and spend their earned income on real goods. We use this paradigm to test whether a labor-income tax and an equivalent consumption tax lead to identical labor-leisure allocations. Despite controlling for subjects’ work ability and inherent labor-leisure preferences and disallowing saving, subjects reduce their labor supply significantly more in response to an income tax than to an equivalent consumption tax. We discuss the economic implications of a policy shift to a consumption tax.
    Keywords: experimental economics, tax equivalence, income tax, consumption tax, behavioral economics
    JEL: C91 H22 H31
    Date: 2010–08

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