nep-acc New Economics Papers
on Accounting and Auditing
Issue of 2010‒12‒23
seven papers chosen by
Alexander Harin
Modern University for the Humanities

  1. The Effects of Bonus Taxes on Executive Compensation in a Principal-Agent Model By Helmut Dietl; Martin Grossmann; Markus Lang; Simon Wey
  2. Accounting for Product Substitution in the Analysis of Food Taxes Targeting Obesity By Miao, Zhen; Beghin, John C.; Jensen, Helen H.
  3. Depreciation Classes, Return on Investment and Economic Profitability By Carlo Alberto Magni
  4. Partial compensation/responsibility By Karen CRABBE; Karolien DE BRUYNE
  5. The Mexican Tax-Benefit System By Absalón, Carlos; Urzúa, Carlos M.
  6. Optimal taxation and constrained inefficiency in an infinite-horizon economy with incomplete markets By Piero Gottardi; Atsushi Kajii; Tomoyuki Nakajima
  7. The Tax Policy in the Chilean Economy: a Regional Applied General Equilibrium Analysis By Marcos Minoru Hasegawa

  1. By: Helmut Dietl (Institute for Strategy and Business Economics, University of Zurich); Martin Grossmann (Institute for Strategy and Business Economics, University of Zurich); Markus Lang (Institute for Strategy and Business Economics, University of Zurich); Simon Wey (Institute for Strategy and Business Economics, University of Zurich)
    Abstract: The financial crisis from 2007-2010 was the worst crisis since the Great Depression. Politicians, economists and regulators search for measures to avoid such a crisis to repeat. One prominent proposal is the introduction of bonus taxes for corporate executives. In this paper, we analyze the effects of such a bonus tax on executive compensation in a principal-agent model. Our paper shows that a bonus tax may lead to the unintended result that the effort-based compensation increases at the expense of the fixed salary. The introduction of a bonus tax can further induce the principal to offer higher bonuses even though the agent always reduces his effort. The tax-induced effort reduction by the agent decreases with an increase in the product of risk aversion and uncertainty. Moreover, a bonus tax will decrease social welfare unless the social planner puts a sufficiently high weight on tax revenue. Finally, we present simulation results for two general classes of effort cost functions.
    Keywords: Principal-agent model, bonus tax, labor taxation, executive compensation, financial regulation
    JEL: H24 J30 M52
    Date: 2010–12
  2. By: Miao, Zhen; Beghin, John C.; Jensen, Helen H.
    Abstract: We extend the existing literature on food taxes targeting obesity. First, we incorporate the implicit substitution between sugar and fat nutrients implied by a complete food demand system and by conditioning on how food taxes affect total calorie intake. Second, we propose a methodology that accounts for the ability of consumers to substitute leaner low-fat and low-sugar items for rich food items within the same food group. This substitution is integrated into a demand system in addition to substitution among food groups. Simulations of a tax on added sugars show that the impact of the tax on consumption patterns is understated and the effect on welfare loss overstated when abstracting from this substitution within food groups.
    Keywords: discretionary calories; fat; food demand; health policy nutrition; low-fat; low-sugar substitutes; obesity; sugar; sweeteners; tax.
    JEL: I18 Q18
    Date: 2010–12–16
  3. By: Carlo Alberto Magni
    Abstract: This paper aims to provide a foundation for the notion of economic rate of return and investigate its relations with accounting rates of return. Introducing the notion of depreciation class (the set of depreciation schedules with the same aggregate book value) it is shown that the mean of the Return On Investments (ROI) determined by the project’s depreciation class (weighted by book values) captures the project’s economic profitability. Such a rate of return spans a space of infinitely many economic rates of return: each of them is an average ROI resulting from a well-specified depreciation class. Any project’s IRR is itself a mean of (generally non-constant) ROIs generated by an idealized (neutral) depreciation class. As a result, a project is not uniquely associated with one economic return rate; rather, it is uniquely associated with one economic return function, which maps depreciation classes into economic rates of return. Among them, the project’s average ROI should be regarded as the basic economic rate of return, since it always exists and is unique.
    Date: 2010–12–14
  4. By: Karen CRABBE; Karolien DE BRUYNE
    Abstract: The goal of this paper is to analyse the impact of interactions between tax rates and agglomeration rents on location decisions of firms within Belgium. In the theoretical literature it is argued that both location determinants may weaken each other’s impact. Using the number of new firms at the sector level for 43 Belgian districts, we show that local effective tax rates either have no or a negative impact on location decisions. Moreover, both types of agglomeration rents in a district are important for location decisions. The presence of firms in a district attracts new firms, while the presence of firms in the same sector deters firm entry due to competition. However, the interaction effect between taxes and agglomeration rents on firm entry is significant. We show that a higher effective tax rate in a district weakens the positive impact of the agglomeration rents on location decisions of firms.
    Date: 2010–10
  5. By: Absalón, Carlos (Universidad Autónoma de Puebla); Urzúa, Carlos M. (Tecnológico de Monterrey, Campus Ciudad de México)
    Abstract: After the economic crisis that erupted in 1994, extreme poverty in Mexico increased steadily until it ended up affecting more than one third of the population in 1996. Since then, the government has increased substantially social benefits, directing most of its efforts toward reducing poverty (the percentage of population living in poverty, although still high, is now lower than in the pre-crisis years). Regarding the tax system, in 2007 the Congress enacted several changes in the case of income taxes and some excise taxes. Thus, on both sides, benefits and taxes, there have been several recent reforms in Mexico that are worth to study in a micro-simulation framework.
    Keywords: Mexico, tax system, benefit system, impuestos, prestaciones sociales
    JEL: H20 H24 H50 H55 O54
    Date: 2009–06
  6. By: Piero Gottardi (European University Institute); Atsushi Kajii (Institute of Economic Research, Kyoto University); Tomoyuki Nakajima (Institute of Economic Research, Kyoto University)
    Abstract: How should capital and labor be taxed when individuals' labor income is subject to unin- surable idiosyncratic risks? To address this question, we develop a tractable infinite horizon model with incomplete markets and consider a dynamic optimal taxation problem with linear taxes on the wage and interest income. We derive two general principles for public policy in such an environment: (i) providing an insurance for the idiosyncratic income risks; and (ii) allocating tax burdens efficiently over time. The first principle calls for taxing the labor income. The second principle clarifies when accumulating government debt is welfare improving, and also when the tax rate on physical capital needs to be strictly positive in the long run. We also calibrate our model to the U.S. economy and find that the presence of idiosyncratic income risks significantly affects the optimal tax rates and the optimal amount of the government debt.
    Keywords: incomplete markets; constrained inefficiency; optimal taxation; Ramsey equilibrium.
    JEL: D52 D60 D90 E20 E62 H21 O40
    Date: 2010–12
  7. By: Marcos Minoru Hasegawa (Department of Economics, Universidad Católica del Norte)
    Abstract: The main goal of this research is to analyze the tax reduction policy impact in sector and regional level and its effectiveness in the Chilean Economy by means of a regional applied general equilibrium model (AGE). A static, deterministic and top-down AGE model, known as ORANIG model with regional extension was adapted for the Chilean Economy that was re-named as ORANICL model. Regional particularities among Chilean regions are relevant when designing policies are oriented to improve welfare and the economic performance at regional and national level in the taxing and spending function with special attention to the value aggregated tax (VAT). A 1% reduction on the VAT increases real GDP in 0.64% and the aggregated employment in 1.60%. In the regional level a 1% of VAT reduction increases the activity level by 0.58%, 0.64%, 0.76% and 0.68% for North, Central, Metropolitan region of Santiago and South regions respectively. By the same shock, employment increases by 1.47%, 1.49%, 1.71% and 1.52% for the same regions respectively. Results yielded by a 1% of VAT reduction seems to be not enough to refute the hypothesis that the centralism approach adopted for the Chilean government is the best policy design choice. Likewise, we show that a regional AGE model is a powerful tool for policy analysis for Chile.
    Keywords: Chile, Regional Economics, Tax Policy, AGE models
    Date: 2010–12

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