nep-acc New Economics Papers
on Accounting and Auditing
Issue of 2010‒10‒16
ten papers chosen by
Alexander Harin
Modern University for the Humanities

  1. Tax Policy after the Crisis – Monitoring Tax Revenues and Tax Reforms in EU Member States – 2010 Report By European Commission
  2. It's all about tax rates: An empirical study of tax perception By Blaufus, Kay; Bob, Jonathan; Hundsdoerfer, Jochen; Kiesewetter, Dirk; Weimann, Joachim
  3. Alleged Tax Competition: The Mysterious Death of InheritanceTaxes in Switzerland By Marius Brülhart; Raphaël Parchet
  4. Optimal Redistributive Taxation with both Extensive and Intensive Responses By Laurence JACQUET; Etienne LEHMANN; Bruno VAN DER LINDEN
  5. On Tax Efforts and Colonial Heritage in Africa By Mkandawire, Thandika
  6. Mergers in Fiscal Federalism By Marie-Laure Breuillé; Skerdilajda Zanaj
  7. Multinationals, tax competition and outside options By Olsen, Trond E.; Osmundsen, Petter
  8. Tax Compliance by Firms and Audit Policy By Ralph-C Bayer; Frank Cowell
  9. Job creation tax credits and job growth: whether, when, and where? By Robert S. Chirinko; Daniel J. Wilson
  10. Valuation when Cash Flow Forecasts are Biased By Richard S. Ruback

  1. By: European Commission
    Abstract: The report is prepared jointly by DG ECFIN and DG TAXUD of the European Commission. As the previous edition, the report analyses recent trends in tax revenues and tax reforms in EU Member States. A particular focus of this year's edition is on the consequences of the global economic and financial crisis on revenue systems and the need to provide adequate policy responses. Given the size of the budgetary consolidation required after the crisis, a contribution from the revenue side will be necessary in many countries. The report analyses how revenue increases and tax systems in general could be designed in a growth-friendly way and to what extent some of the reforms would entail a need for coordination at the EU level. Moreover, it discusses tax policy issues related to the crisis and contributes to the ongoing discussion on financial sector taxation.
    Keywords: European Union, taxation, tax reforms, financial sector
    JEL: H21 H22 H23 H25 H27 H62
    Date: 2010–09
  2. By: Blaufus, Kay; Bob, Jonathan; Hundsdoerfer, Jochen; Kiesewetter, Dirk; Weimann, Joachim
    Abstract: In this paper we apply conjoint analysis to study the influence of changes in the tax rate and the tax base on the perceived tax burden. Our results show that the majority of individuals do not make rational tax decisions based on the actual tax burden, but rather use simple decision heuristics. This leads to the importance of the tax rate being significantly overestimated and the importance of the tax base being significantly underestimated. Furthermore we determine framing effects and show that under specific assumptions, a rise in the actual tax burden can lead to a electoral success. --
    Keywords: behavioral public finance,decision heuristics,framing effects,perceived tax burden,tax-cut-cum-base-broadening,tax complexity,tax illusion
    JEL: G11 H20 H30 K34 M41
    Date: 2010
  3. By: Marius Brülhart; Raphaël Parchet
    Abstract: Interjurisdictional competition over mobile tax bases is an easily understood mechanism, but actual tax-base elasticities are difficult to estimate. Political pressure for reducing tax rates could therefore be based on erroneous estimates of the mobility of tax bases. We show that tax competition provided the overwhelmingly dominant argument in the policy debates leading to a succession of reforms of bequest taxation by Swiss cantons. Yet, we find only very weak statistical evidence of a relationship between tax burdens on bequests and the concerned tax base of wealthy elderly individuals. Moreover, inheritance tax revenues are found to increase in inheritance tax rates even in the long run, and actual tax rates lie well below the revenue-maximising levels throughout. The alleged pressures of tax competition did not seem in reality to exist.
    Keywords: tax competition; inheritance taxation; fiscal federalism
    JEL: H3 H7
    Date: 2010–06
  4. By: Laurence JACQUET (Norvegian School of Economics and Business Administration , CESifo, Hoover Chair and IRES - Université Catholique de Louvain); Etienne LEHMANN (CREST-INSEE, IRES - Université Catholique de Louvain, IZA and IDEP); Bruno VAN DER LINDEN (UNIVERSITE CATHOLIQUE DE LOUVAIN, Center for Operations Research and Econometrics (CORE))
    Abstract: We derive a general optimal income tax formula when individuals respond along both the intensive and extensive margins and when income effects can prevail. Individuals are heterogeneous across two dimensions: their skill and their disutility of participation. Preferences over consumption and work effort can differ with respect to the level of skill, with only the Spence-Mirrlees condition being imposed. Employing a new tax perturbation approach that integrates the nonlinearity of the tax function into the behavioral elasticities, we derive a fairly mild condition for optimal marginal tax rates to be nonnegative everywhere. Numerical simulations using U.S. data confirm the mildness of our conditions. The extensive margin strongly reduces the level of optimal marginal tax rates.
    Keywords: Optimal tax formula, Tax perturbation, Random participation
    JEL: H21 H23
    Date: 2010–09–02
  5. By: Mkandawire, Thandika (London School of Economics and Political Science. Department of International Development)
    Abstract: <p> One commonly observed phenomena about taxation in Africa are regional differences and the fact that southern African countries have higher levels of shares of taxation in GDP. This article argues that the major source of differences in ‘tax effort’ is the colonial histories of various countries. Using standard measures of ‘tax effort in a panel data framework and dividing colonial Africa along forms of incorporation into the colonial system, it shows that African countries and others with similar colonial histories have higher levels of ‘tax effort’. However, the difference disappears when we control for the colonial factor. These results hold under different model specifications. <p>
    Keywords: taxation; GDP; regional differences; colonial histories; tax effort;
    JEL: O20 O40 O55
    Date: 2010–10–05
  6. By: Marie-Laure Breuillé; Skerdilajda Zanaj
    Abstract: This paper analyzes mergers of regions in a two-tier setting with both horizontal and vertical tax competition. The merger of regions induces three e¤ects on regional and local tax policies, which are transmitted both horizontally and vertically: i) an alleviation of tax competition at the regional level, ii) a rise in the regional tax base, and iii) a larger internalization of tax externalities generated by cities. It is shown that the merger of regions increases regional tax rates while decreasing local tax rates. This Nash equilibrium with mergers is then compared with the Nash equilibrium with coalitions of regions.
    Keywords: Mergers, Tax Competition, Fiscal Federalism
    JEL: H73 H25
    Date: 2010–09–06
  7. By: Olsen, Trond E. (Dept. of Finance and Management Science, Norwegian School of Economics and Business Administration); Osmundsen, Petter (Dept. of Industrial Economics, Risk Management and Planning, University of Stavanger)
    Abstract: We analyse tax competition when a multinational firm has invested in two countries but also has an outside option, e.g., towards a third country. An interesting finding is that more attractive outside options for firms may constitute a win-win situation; the firm as well as its present host countries may gain when this occurs. The reason that it benefits the host countries is that an enhanced outside option reduces the inefficiencies of tax competition. An implication of the result is that better outside options for multinational firms may reduce the gains from host countries’ policy coordination and thus reduce those countries’incentives to coordinate their policies. Also, with a development where outside options become more accessible, the perceived costs of tax competition, e.g., in terms of underprovision of public goods, may be overestimated. Our findings may also have implications for international negotiations, since it provides an argument for mutual reduction of entry barriers, as this may improve outside options.
    Keywords: Tax competition; mobility; common agency; countervailing incentives
    JEL: D82 H21 L51
    Date: 2010–09–30
  8. By: Ralph-C Bayer (School of Economics, University of Adelaide); Frank Cowell
    Abstract: Firms are usually better informed than tax authorities about market conditions and the potential profits of competitors. They may try to exploit this situation by under-reporting their own taxable profits. The tax authority could offset firms' informational advantage by adopting "smarter" audit policies that take into account the relationship between a firm's reported profits and reports for the industry as a whole. Such an audit policy will create an externality for the decision makers in the industry and this externality can be expected to affect not only firms' reporting policies but also their market decisions. If public policy takes into account wider economic issues than just revenue raising what is the appropriate way for a tax authority to run such an audit policy? We develop some clear policy rules in a standard model of an industry and show the effect of these rules using simulations.
    Keywords: tax compliance, evasion, oligopoly
    JEL: H20 H21
    Date: 2010–10
  9. By: Robert S. Chirinko; Daniel J. Wilson
    Abstract: This paper studies the effects of Job Creation Tax Credits (JCTCs) enacted by U.S. states over the past 20 years. First, we investigate whether JCTCs stimulate within-state job growth. Second, we assess from where any increased employment comes from – in-state or out-of-state? Third, we evaluate when JCTCs' effects occur. In particular, we test for negative anticipation effects between JCTC enactment and when legislation goes into effect. We investigate these questions using a difference-in-differences estimator applied to monthly panel data on employment, the JCTC value, the JCTC effective and legislative dates, and various controls.
    Keywords: Tax credits ; Tax incentives ; Public policy
    Date: 2010
  10. By: Richard S. Ruback (Harvard Business School, Finance Unit)
    Abstract: This paper focuses adaptations to the discount cash flow (DCF) method when valuing forecasted cash flows that are biased measures of expected cash flows. I imagine a simple setting where the expected cash flows equal the forecasted cash flows plus an omitted downside. When the omitted downside is temporary, the adjustment is to deflate the forecasts and to set the discount rate equal to the cost of capital. However, when the downside is permanent, the adjustment is to deflate the cash flows and to increase the discount rate so that it includes the cost of capital plus the probability of a downside.
    Date: 2010–10

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