nep-acc New Economics Papers
on Accounting and Auditing
Issue of 2011‒04‒23
eight papers chosen by
Alexander Harin
Modern University for the Humanities

  1. Taxpayer Information Assistance Services and Tax Compliance Behavior By James Alm; Todd Cherry; Michael Jones; Michael McKee
  2. Taxpayer Reporting Responses and the Tax Reform Act of 1986 By James Alm; Sally Wallace
  3. Earnings shocks and tax-motivated income-shifting: Evidence from European multinationals By Dharmapala, Dhammika; Riedel, Nadine
  4. Tax Evasion, Welfare Fraud, and the « Broken Windows » Effect : An Experiment in Belgium, France and the Netherlands By Mathieu Lefebvre; Pierre Pestieau; Arno Riedl; Marie-Claire Villeval
  5. Mobility, Competition, and the Distributional Effects of Tax Evasion By James Alm; Edward B. Sennoga
  6. The peer group effect and the optimality properties of head and income taxes By Francisco Martinez Mora
  7. Optimal Redistributive Taxation with Both Labor Supply and Labor Demand Responses By Jacquet, Laurence; Lehmann, Etienne; Van der Linden, Bruno
  8. Development of a financial health indicator based on companies’ annual accounts By David Vivet

  1. By: James Alm (Department of Economics, Tulane University); Todd Cherry (Department of Economics, Walker College of Business, Appalachian State University); Michael Jones (Department of Economics, Bridgewater State College); Michael McKee (Department of Economics, Walker College of Business, Appalachian State University)
    Abstract: The traditional "enforcement" paradigm of tax administration views taxpayers as potential criminals, and emphasizes the repression of illegal behavior through frequent audits and stiff penalties. However, an important trend in tax administration policies in recent years is the recognition that this paradigm is incomplete. Instead, a revised "service" paradigm recognizes the role of enforcement, but also emphasizes the role of tax administration as a facilitator and a provider of services to taxpayer-citizens. This research utilizes laboratory experiments to test the effectiveness of such taxpayer service programs in enhancing tax compliance. Our basic experimental setting mimics the naturally occurring environment: subjects earn income, they must choose whether to file a tax return, and they then must choose how much of their net income to report to a tax authority that may audit the subject. To investigate the effects of taxpayer services, we "complicate" these compliance decisions of subjects, and then provide "services" from the "tax administration" that allow subjects to compute more easily their tax liabilities. Our results indicate that uncertainty reduces both the filing and the reporting compliance of an individual. However, we also find that agency-provided information has a positive and significant impact on the tendency of an individual to file a tax return, and also on reporting for individuals who choose to file a return.
    Keywords: tax evasion, tax compliance, behavioral economics, experimental economics
    JEL: H26 C91
    Date: 2011–04
  2. By: James Alm (Department of Economics, Tulane University); Sally Wallace (Department of Economics, Andrew Young School of Policy Studies, Georgia State University)
    Abstract: This paper examines the effects of the Tax Reform Act of 1986 on the reporting decisions of taxpayers, using microlevel information from the 1984 and 1989 Statistics of Income. We find that tax reform clearly mattered in the reporting decisions of individuals, with reporting elasticities that cluster between 0.3 and 0.7. However, our results also indicate that individuals' estimated responses vary in different ways for individuals with different income levels, in ways that differ by the types of incomes received by taxpayers, in ways that are sensitive to the estimation approach, and in ways that depend upon data adjustment methods.
    Keywords: Tax Reform Act of 1986, income reporting, taxable income elasticity, quantile regression
    JEL: H24 H31 H3
    Date: 2011–04
  3. By: Dharmapala, Dhammika; Riedel, Nadine
    Abstract: This paper presents a new approach to estimating the existence and magnitude of taxmotivated income shifting within multinational corporations. Existing studies of income shifting use changes in corporate tax rates as a source of identification. In contrast, this paper exploits exogenous earnings shocks at the parent firm and investigates how these shocks propagate across low-tax and high-tax multinational subsidiaries. This approach is implemented using a large panel of European multinational affiliates over the period 1995-2005. The central result is that parents' positive earnings shocks are associated with a significantly positive increase in pretax profits at low-tax affiliates, relative to the effect on the pretax profits of high-tax affiliates. The result is robust to controlling for various other differences between low-tax and high-tax affiliates and for country-pair-year fixed effects. Additional tests suggest that the estimated effect is attributable primarily to the strategic use of debt across affiliates. The magnitude of income shifting estimated using this approach is substantial, but somewhat smaller than that found in the previous literature. --
    Date: 2011
  4. By: Mathieu Lefebvre (University of Liège, CREPP, 7 boulevard du rectorat (B31), Liège 4000, Belgium); Pierre Pestieau (University of Liège, CREPP, 7 boulevard du rectorat (B31), Liège 4000, Belgium ; CORE, University of Louvain, CEPR and PSE); Arno Riedl (School of Economics and Business, Maastricht University, P.O. Box 616, NL-6200 Maastricht, The Netherlands; CESifo Munich, Germany; IZA, Bonn, Germany); Marie-Claire Villeval (Université de Lyon, Lyon, F-69003, France ; CNRS, GATE Lyon St Etienne,F-69130 Ecully, France)
    Abstract: In a series of experiments conducted in Belgium (Wallonia and Flanders), France and the Netherlands, we compare behavior regarding tax evasion and welfare dodging, with and without information about others’ behavior. Subjects have to decide between a "registered" income, the realization of which will be known to the tax authority for sure, and an "unregistered" income that will only be known with some probability. This unregistered income comes from self-employment in the Tax treatment and from black labor supplementing some unemployment compensation in the Welfare treatment. Subjects have then to decide on wether reporting their income or not, knowing the risk od detection. The results show that (i) individuals evade more in the Welfare treatment than in the Tax treatment ; (ii) many subjects choose and option that allows for tax evasion or welfare fraud but report their income honestly anyway ; (iii) examples of low compliance tend to increase tax evasion while examples of high compliance exert no influence ; (iv) tax evasion is more frequent in France and the Netherlands ; Wallons evade taxes less than Flemish. There is no cross-country difference in welfare dodging.
    Keywords: tax evasion, social fraud, social comparisons,cross-country comparisons, experiments
    JEL: H26 H31 I38 C91
    Date: 2011
  5. By: James Alm (Department of Economics, Tulane University); Edward B. Sennoga (Uganda Field Office, African Development Bank)
    Abstract: The standard assumption underlying the incidence of tax evasion is that the beneficiaries are those who successfully evade their taxes. However, a general equilibrium process of adjustment should occur through changes in the relative prices of both commodities and factors of production as resources move into and out of the relevant activities, and these changes should tend to reduce any initial benefit from evasion. In this paper we analyze these incidence effects, using a computable general equilibrium model of an economy with a formal (and taxed) sector and an informal (and untaxed) sector, in order to examine how much of the initial benefit of income tax evasion is retained by the evaders and how much is shifted via factor and commodity price changes stemming from mobility. Our simulation results show that the household that successfully evades its income tax liabilities has a post-evasion welfare that is only slightly higher than its post-tax welfare if it had fully complied with taxes. Further, while this household keeps some of its initial increase in welfare, a large percentage of this initial gain is competed away as a result of mobility that reflects competition and entry into the informal sector. Consequently, the evading household benefits only marginally from successful income tax evasion, and this advantage diminishes with mobility via competition/entry in the informal sector.
    Keywords: tax evasion, computable general equilibrium model, social accounting matrix
    JEL: H26 H22
    Date: 2011–04
  6. By: Francisco Martinez Mora
    Abstract: This paper studies a Tiebout model with two school districts, housing markets and peer effects to re-evaluate the optimality properties of the allocation of households to districts induced by head and income taxes. The main novel results reveal that head taxes are not superior to income taxes and that the indirect redistribution implied by income taxation is not necessarily at odds with location optimality or associated to welfare losses. Many combinations of head taxes differentiated by household type can sustain the optimal outcome as an equilibrium. While this may not be possible using differentiated income taxes, a combination of non-differentiated ones and differentiated head taxes levied on the residents of the rich district can lead to the optimal outcome and effect significant local redistribution. In turn, non-differentiated head taxes are suboptimal (unless optimality requires one of the districts to be type-homogeneous) and a combination of uniform income taxes and head taxes levied on the rich district's population can do as well as them. Moreover, non-differentiated income taxes may generate smaller welfare losses than their lump-sum counterpart, a result which clashes with the benefit view of head taxes.
    Keywords: Tiebout; peer effects; head tax, income tax; optimality
    Date: 2011–04
  7. By: Jacquet, Laurence (Norwegian School of Economics and Business Administration); Lehmann, Etienne (CREST-INSEE); Van der Linden, Bruno (IRES, Université catholique de Louvain)
    Abstract: This paper characterizes the optimal redistributive tax schedule in a matching unemployment framework with endogenous (voluntary) nonparticipation and (involuntary) unemployment. The optimal employment tax rate is given by an inverse employment elasticity rule. This rule depends on the global response of the employment rate, which depends not only on the participation (labor supply) responses, but also on the vacancy posting (labor demand) responses and on the product of these two types of responses. For plausible parameters, our matching environment induces much lower employment tax rates than the usual competitive participation model.
    Keywords: optimal taxation, labor market frictions, unemployment
    JEL: D82 H21 J64
    Date: 2011–04
  8. By: David Vivet (National Bank of Belgium, Microeconomic Information Department)
    Abstract: This document describes the development of a financial health indicator based on companies' financial statements. This indicator is conceived as a weighted combination of variables, which is obtained through a model discriminating between failing firms and non-failing firms. The definition of failure is based on a legal criterion, namely that a company is considered to have failed if it has faced bankruptcy or judicial administration in the past. Based on the model results, companies are positioned in financial health classes, which are intended to be included in the "company files" designed by the Central Balance Sheet Office.
    Keywords: Corporate failure, logistic regression, micro-data, financial statements
    JEL: C25 G30 G33
    Date: 2011–04

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