nep-acc New Economics Papers
on Accounting and Auditing
Issue of 2010‒10‒23
eleven papers chosen by
Alexander Harin
Modern University for the Humanities

  1. Mandatory IFRS adoption and accounting comparability By Stefano Cascino; Joachim Gassen
  2. Mergers in Fiscal Federalism By Breuillé, Marie-Laure; Zanaj, Skerdilajda
  3. Financial Transaction Tax: Small is Beautiful By Zsolt Darvas; Jakob von Weizs„cker
  4. Juridical and financial considerations on the public re capitalisation and rescue of financial institutions during periods of financial crises By Ojo, Marianne; Rodriguez-Miguez, Jose
  5. Modelling Aggregate Personal Income Tax Revenue in Multi-Schedular and Multi-Regional Structures By John Creedy; Jose Felix Sanz-Sanz
  6. Economic Transition, Firm Organization, and Internal Control Determinants of Audit Structure in Russian firms By Iwasaki, Ichiro
  7. Local tax interaction with multiple tax instruments: evidence from Flemish municipalities By S. VAN PARYS; B. MERLEVEDE; T. VERBEKE
  8. Separation of Powers or Ideology? What Determines the Tax Level? Theory and Evidence from the US States. By Leandro M. de Magalhães; Lucas Ferrero
  9. Empirical Evidence on the Effects of Tax Incentives By A. KLEMM; S. VAN PARYS
  10. Did Tax Policies mitigate US Business Cycles? By Jimborean, R.; Ferroni, F.
  11. Optimal Dynamic Nonlinear Income Taxation under Loose Commitment By Jang-Ting Guo; Alan Krause

  1. By: Stefano Cascino; Joachim Gassen
    Abstract: The adoption of IFRS by many countries worldwide fuels the expectation that financial accounting might become more comparable across countries. This expectation is opposed to an alternative view that stresses the importance of incentives in shaping accounting information. We provide early evidence on this debate by investigating the effects of mandatory IFRS adoption on the comparability of financial accounting information around the world. Our results suggest that while mandatory adoption of IFRS increases the comparability of some prominent balance sheet line items across countries, it has no clear effect on the cross-country comparability of earnings attributes. To provide a rationale for these mixed findings, we investigate the IFRS measurement and disclosure compliance choices for a hand-collected sample of German and Italian firms. We find that predictable country-, region-, and firm-level incentives continue to shape the outcome of the financial reporting process and thus limit the crosssectional comparability of financial accounting information. Overall, our results suggest that the mandatory adoption of IFRS has a limited impact on accounting comparability and that accounting information continues to be shaped by both reporting standards and incentives.
    Keywords: international accounting, IFRS, comparability, accounting harmonization, earnings attributes, disclosure determinants, accounting incentives
    JEL: M41 G14 F42
    Date: 2010–10
  2. By: Breuillé, Marie-Laure; Zanaj, Skerdilajda
    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
  3. By: Zsolt Darvas (Institute of Economics - Hungarian Academy of Science, Bruegel-Brusselss); Jakob von Weizs„cker (Bruegel-Brusselss)
    Abstract: The case for taxing financial transactions merely to raise more revenues from the financial sector is not particularly strong. Better alternatives to tax the financial sector are likely to be available. However, a tax on financial transactions could be justified in order to limit socially undesirable transactions when more direct means of doing so are unavailable for political or practical reasons. Some financial transactions are indeed likely to do more harm than good, especially when they contribute to the systemic risk of the financial system. However, such a financial transaction tax should be very small, much smaller than the negative externalities in question, because it is a blunt instrument that also drives out socially useful transactions. There is a case for taxing over-the-counter derivative transactions at a somewhat higher rate than exchange-based derivative transactions. More targeted remedies to drive out socially undesirable transactions should be sought in parallel, which would allow, after their implementation, to reduce or even phase out financial transaction taxes.
    Keywords: transaction tax, Tobin tax, financial transactions, global financial crisis, financial regulation
    JEL: H20 D62 G10 F30
    Date: 2010–09
  4. By: Ojo, Marianne; Rodriguez-Miguez, Jose
    Abstract: As well as a consideration of why the lender of last resort facility should be used for emergency situations and systemically relevant institutions in particular, an interesting point which will be considered in this paper is the comparison between the European Central Bank (ECB) Recommendation and its application by the Commission in the Re capitalisation Communication, specifically with its Annex, where the Commission explains how it determines the price of equity or own funds (ordinary or common shares) - balancing the “real value” with the “market value” within a crisis context. This paper will also consider how to transform the Crisis into an opportunity in order to minimise tax burdens to taxpayers – as well as making financial markets more efficient. Furthermore, whether the Commission and Member States have applied the methodology (the determination of the price of equity – as stated in the Annex to the Recapitalisation Communication on Financial Institutions) in determining the price of equity with respect to the capital of banks acquired by Member States, will be addressed. Such consideration could provide a vital key to determining the real value of State Aid and the best possible price for which capital could be sold. Given the scale of government intervention and State rescues which occurred during the recent crisis – as well as the prominence accorded to measures aimed at preventing and limiting distortions of competition, calls have been made for competition authorities to take on more formidable roles in designing and implementing exit strategies. In order to foster competition as much as possible, it is proposed that ”governments should provide financial institutions with incentives to prevent them from depending on government support once the economy begins to recover.”
    Keywords: Financial Crisis; state aid; recapitalisation; equity; own funds; tier capital; MEIP; guarantees; Troubled Asset Relief Program (TARP); fundamentally sound institutions; rescue and restructuring aid; recovery.
    JEL: D53 K2 E58 G21
    Date: 2010–07
  5. By: John Creedy; Jose Felix Sanz-Sanz
    Abstract: This paper derives analytical expressions for aggregate personal income tax revenue obtained from a multi-schedular and multi-regional personal income tax system, with revenue divided among central and regional governments. Aggregate income tax revenue is expressed as a function of characteristics of the distribution of taxable income, making it possible to identify the sources of revenue differences among regions. The approach is applied to the tax structure in Spain, and the effects of income distribution differences among the Spanish regions is examined.
    Date: 2010
  6. By: Iwasaki, Ichiro
    Abstract: With a unique dataset of joint-stock companies, this paper aims to thoroughly describe the corporate audit structure in transition Russia and empirically analyze its determinants. When compared to the international standard, Russian firms have a weak audit structure in terms of the independence and expertise of the board of auditors and the accounting auditor. We found that board composition, affiliation with a business group, and presence of foreign investors are the most important factors determining the audit structure of Russian firms. The scope of the impact of these three factors, however, differed considerably with each other. We also found that government ownership, company size, fund procurement activities, and overseas advancement also have statistically significant impacts on the corporate audit structure in Russia.
    Keywords: audit structure, board composition, business integration, foreign investment, economic transition, Russia
    JEL: G34 K22 L22 M42 P31 P34
    Date: 2010–09
    Abstract: We investigate the long run result of strategic interaction among local jurisdictions using multiple tax instruments. Most studies about local policy interaction only consider a single policy instrument. With multiple tax instruments, however, tax interaction is more complex. We construct a simple theoretical framework based on a basic spillover model, with two tax rates and immobile resources. We show that the signs of within and cross tax interaction crucially depend on the extent to which a jurisdiction mimics the other jurisdiction’s budget, and the extent to which the preference for one tax instrument is affected by the level of the same or the other tax instrument in the other jurisdiction. Its specific institutional setting makes of Flanders (Belgium) a unique region to evaluate multiple tax interaction. Municipalities in Belgium are free to set two important local tax rates: the local property tax rate and the local income tax rate. We estimate whether years of strategic interaction between Flemish municipalities, of which the division is stable since 1983, has resulted in municipalities mimicking their neighbors’ tax structure. We do so by between estimating income and property tax reaction functions for the period 1992-2004, each of which simultaneously includes the neighboring municipalities’ income ànd property tax rate. We find that the property (income) tax rate of a municipality is significantly higher if the property (income) tax rate in other municipalities is high, and that the coefficient is higher if the possible impact of the other municipalities’ income (property) tax rate is accounted for. The cross impact of the other municipalities’ income (property) tax rate on the property (income) tax rate is always negative, though the significance is higher for the property tax than for the income tax reaction function. The result suggests that municipalities are keener on competing each other’s tax structure than on mimicking the neighboring municipalities’ budget.
    Keywords: tax competition; yardstick competition; local tax rates; spatial econometrics; multiple taxes; tax structure
    Date: 2010–09
  8. By: Leandro M. de Magalhães; Lucas Ferrero
    Abstract: We find the surprising result that the tax level is negatively correlated with the size of the Democratic majority in the interval in which the Democrats hold between 50 and 66% of the seats in the state Legislatures. This negative relationship suggests the failure of a simple ideological model that had found some support in the literature, that the main determinant of the tax level is the extent of partisan control over the Legislature. We compare this model with an alternative: a separation-of-powers model in which ideology plays no role in determining the tax level. The driving force of our model is the overlap between the supporters of the Governor and the supporters of the legislative majority. The tax level at first rises and then decreases as the size of the ruling majority increases above 50% of the seats, whether the legislative majority is of the same party as the Governor or from the opposition. This non-monotonic relationship is observed in the data and explained by our model.
    Keywords: Separation of powers, divided government, line-item veto, tax level, semiparametric.
    JEL: H00 H11 H20 H30 H71
    Date: 2010–10
    Abstract: This paper considers two empirical questions about tax incentives: (i) are incentives used as tools of tax competition and (ii) how effective are incentives in attracting investment? To answer these, we prepared a new dataset of tax incentives in over 40 Latin American, Caribbean and African countries for the period 1985–2004. Using spatial econometrics techniques for panel data to answer the first question, we find evidence for strategic interaction in tax holidays, in addition to the well-known competition over the corporate income tax (CIT) rate. We find no evidence, however, for competition over investment allowances and tax credits. Using dynamic panel data econometrics to answer the second question, we find evidence that lower CIT rates and longer tax holidays are effective in attracting FDI in Latin America and the Caribbean but not in Africa. None of the tax incentives is effective in boosting gross private fixed capital formation.
    Keywords: Tax incentives, tax competition, investment, developing countries
    JEL: H25 H87
    Date: 2010–09
  10. By: Jimborean, R.; Ferroni, F.
    Abstract: I study whether US Tax Policies affected economic volatility during the post World War II period. I employ a Real Business Cycle model with distorting taxation on household income and tax rules, and assume that taxes respond to the cyclical conditions of the economy. I estimate the deep parameters of the model using Bayesian techniques. My findings are; (a) fiscal policies display a strong countercyclical behavior, (b) help to reduce the cyclical and raw volatility of GDP, consumption, investment when the government can issue debt, and (c) unexpected changes in tax policies do not affect the volatility of the macroeconomic variables.
    Keywords: Fiscal Policy and Business Cycles, Bayesian Methods.
    JEL: E32 E62 C11 C22
    Date: 2010
  11. By: Jang-Ting Guo; Alan Krause
    Abstract: This paper examines an infinite-horizon model of dynamic nonlinear income taxation in which there exists a small probability that the government cannot commit to its future tax policy. In this "loose commitment" environment, we find that even a little uncertainty over whether the government can commit yields substantial effects on the optimal dynamic nonlinear income tax system. Under an empirically plausible parameterization, numerical simulations show that high-skill individuals must be subsidized in the short run, despite the government's redistributive objective, unless the probability of commitment is higher than 98%. Loose commitment also reverses the short-run welfare effects of changes in most model parameters. In particular, all individuals are worse-off, rather than better-off, in the short run when the proportion of high-skill individuals in the economy increases. Finally, our main findings remain qualitatively robust to a setting in which loose commitment is modelled as a Markov switching process.
    Keywords: Dynamic Income Taxation, Loose Commitment
    JEL: H21 H24
    Date: 2010–10

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