nep-acc New Economics Papers
on Accounting and Auditing
Issue of 2011‒09‒16
twelve papers chosen by
Alexander Harin
Modern University for the Humanities

  1. "The Impacts of Various Taxes on Foreign Direct Investment" By Stacie Beck; Alexis Chaves
  2. Is VAT stabilizing? By Christian Ebeke; Hélène Ehrhart
  3. Trade Integration and Business Tax Differentials: Theory and Evidence from OECD Countries By Nelly Exbrayat; Benny Geys
  4. Viewing tax policy through party-colored glasses: What German politicians believe By Janeba, Eckhard; Heinemann, Friedrich
  5. The Dynamic Effects of Personal and Corporate Income Tax Changes in the United States By Mertens, Karel; Ravn, Morten O
  6. The power to tax By Estrada, Fernando
  7. Tax policy and income inequality in the U.S., 1978—2009: A decomposition approach By Olivier Bargain; Mathias Dolls; Herwig Immervoll; Dirk Neumann; Andreas Peichl; Nico Pestel; Sebastian Siegloch
  8. Taxes, Wages and Working Hours By Ericson, Peter; Flood, Lennart
  9. Fair Value Accounting: Information or Confusion for Financial Markets? By Antonio Parbonetti; Andrea Menini; Michel Magnan
  10. The value-added tax reform puzzle By Cai, Jing; Harrison, Ann
  11. Economic integration and the optimal corporate tax structure with heterogeneous firms By Christian Bauer; Ronald B. Davies; Andreas Haufler
  12. Juridical and financial considerations on the public recapitalisation and rescue of financial institutions during periods of financial crises (Part II) By Ojo, Marianne

  1. By: Stacie Beck (Department of Economics,University of Delaware); Alexis Chaves (U.S. Bureau of Economic Analysis, U.S. Department of Commerce)
    Abstract: Previous work on the effect of taxes on foreign direct investment (FDI) focused primarily on capital income taxes. We investigate the proposition that other forms of taxation may also deter FDI. We use tax ratios, i.e., average effective tax rates, on consumption, labor and capital income for a panel of 25 OECD countries from 1975-2006. We find that increases in relative tax rates on capital income encourage net FDI outflow whereas increases in labor income tax rates have the opposite effect. Increases in relative consumption tax rates have insignificant impacts.
    Keywords: Tax Ratio, Foreign Direct Investments
    JEL: F21 H20 C33
    Date: 2011
  2. By: Christian Ebeke (CERDI - Centre d'études et de recherches sur le developpement international - CNRS : UMR6587 - Université d'Auvergne - Clermont-Ferrand I); Hélène Ehrhart (CERDI - Centre d'études et de recherches sur le developpement international - CNRS : UMR6587 - Université d'Auvergne - Clermont-Ferrand I)
    Abstract: We study whether the adoption of the value-added tax (VAT) in developing countries was an effective way of stabilizing tax revenues. Using a large panel of 103 developing countries observed over 1980-2008 and several alternative estimation methods in order to deal with the self-selection bias and the endogeneity issue of VAT adoption, we find robust evidence that the presence of VAT leads to significantly lower tax revenue instability. On average, countries with a value added tax experience tax revenue instability forty to fifty percent lower than the countries which do not have a VAT system. Those effects decrease with the levels of economic development and trade openness.
    Keywords: Tax Instability;Value Added Tax;Macroeconomic Fluctuations;developing countries
    Date: 2011–08–26
  3. By: Nelly Exbrayat (CERDI - Centre d'études et de recherches sur le developpement international - CNRS : UMR6587 - Université d'Auvergne - Clermont-Ferrand I); Benny Geys (BI Norwegian School of Management - BI Norwegian School of Management)
    Abstract: Building on recent contributions to the New Economic Geography literature, this paper analyses the relation between asymmetric market size, trade integration and business income tax differentials across countries. First, relying on a foot-loose capital model of tax competition, we illustrate that trade integration (or decreasing trade costs) reduces the importance of relative market size for differences in the extent of corporate taxation between countries. Then, using a dataset of 26 OECD countries over the period 1982-2004, we provide supportive evidence of these theoretical predictions: i.e., market size differences are strongly positively correlated with corporate income tax differences across countries but, crucially, trade integration weakens this link. These findings are obtained controlling for the potential endogeneity of trade integration and are robust to various alternative specifications and robustness checks.
    Keywords: Tax competition; Trade integration; New Economic Geography; Tax differentials
    Date: 2011
  4. By: Janeba, Eckhard; Heinemann, Friedrich
    Abstract: Abstract: The process of globalization has an important impact on national tax policies. Most of the literature does not focus directly on the political decision making process and assumes that the desired tax policy is responding to objective underlying tradeoffs. Based on an original survey of members of German national parliament (Bundestag) in 2006/7 we document a strong ideological bias among policy makers with respect to the perceived mobility of international tax bases (real capital and paper profits). Ideology influences also directly and indirectly the perceived national autonomy in tax setting and preferences for a EU minimum tax for companies. There seems little consensus as to what the efficiency costs of capital taxation in open economies are, even though our survey falls in a period of extensive debate about and actual adoption of a company tax reform bill in Germany.
    Keywords: Globalization; business taxation; beliefs; member of parliament; profit shifting; party discipline; yardstick competition
    JEL: H25 D83 D78
    Date: 2011–08
  5. By: Mertens, Karel; Ravn, Morten O
    Abstract: This paper estimates the dynamic effects of changes in taxes in the United States. We distinguish between the effects of changes in personal and corporate income taxes using a new narrative account of federal tax liability changes in these two tax components. We develop an estimator in which narratively identified tax changes are used as proxies for structural tax shocks and apply it to quarterly post WWII US data. We find that short run output effects of tax shocks are large and that it is important to distinguish between different types of taxes when considering their impact on the labor market and the major expenditure components.
    Keywords: fiscal policy; measurement error; narrative identification; tax changes
    JEL: E20 E32 E62 H30
    Date: 2011–09
  6. By: Estrada, Fernando
    Abstract: This article describes the argumentative structure of Hayek on the relationship between power to tax and redistribution. It is observed throughout its work giving special attention to two works: The Constitution of Liberty (1959) and Law, Legislation and Liberty, vol3; The Political Order of Free People, 1979) Hayek describes one of the arguments most complete information bout SFP progressive tax systems (progressive tax). According to the author the history of the tax progressive system, works against such a tax model and deploys a variety of arguments in his favorite spot by critics: liberal democracy.
    Keywords: Power to Tax; Redistribution; Government; Progressive Tax; Democracy; Hayek
    JEL: E62 O23 E64 B1 E2 B2 E6 E60
    Date: 2011–09–06
  7. By: Olivier Bargain (UC Dublin, IZA and CEPS/INSTEAD); Mathias Dolls (University of Cologne and IZA); Herwig Immervoll (OECD, ISER and IZA); Dirk Neumann (University of Cologne and IZA); Andreas Peichl (IZA, University of Cologne, ISER and CESifo); Nico Pestel (University of Cologne and IZA); Sebastian Siegloch (University of Cologne and IZA)
    Abstract: We assess the effects of U.S. tax policy reforms on inequality by applying a new decomposition method that allows us to disentangle mechanical effects due to changes in pre-tax incomes from direct effects of policy reforms. While tax reforms implemented under Democrat administrations, in particular the EITC reforms in the 1990s and the ARRA in 2009, had an equalizing effect at the lower half of the distribution, the disequalizing effects of Republican reforms are due to tax cuts for high-income families. As a consequence of partisan politics, overall policy effects almost cancel out over the whole time period.
    Keywords: Tax policy, Inequality, Redistribution, Political Economy, Great Recession
    JEL: H23 H31 H53 P16
    Date: 2011
  8. By: Ericson, Peter (Sim Solution); Flood, Lennart (Department of Economics, School of Business, Economics and Law, Göteborg University)
    Abstract: This paper presents estimates of individuals’ responses in hourly wages to changes in marginal tax rates. Estimates based on register panel data of Swedish households covering the period 1992 to 2007 produce significant but relatively small net-of-tax rate elasticities. The results vary with family type, with the largest elasticities obtained for single males and the smallest for married/cohabitant females. Despite these seemingly small elasticities, evaluation of the effects of a reduced state tax using a microsimulation model shows that the effort effect matters. The largest effect is due to changes in number of working hours yet including the effort effect results in an almost self-financed reform. As a reference to the earlier literature we also estimate taxable income elasticities. As expected, these are larger than for the hourly wage rates. However, both specifications produce significantly and positive income effects.<p>
    Keywords: income taxation; hourly wage rates; work effort; micro simulation
    JEL: D31 H24 J22 J31
    Date: 2011–08–31
  9. By: Antonio Parbonetti; Andrea Menini; Michel Magnan
    Abstract: The recent financial crisis has led to a critical evaluation of the role that fair value accounting may have played in undermining the stability of the financial system. Reacting to the pressures of banking regulators and governments, standard-setters have brought forward additional guidance on the application of fair value accounting. This paper examines if and how fair value reporting by U.S. commercial banks during the 1996-2009 period influences the quality of information used by financial analysts. Our results show that, overall, the greater the extent of a bank’s assets and liabilities reported at fair value, the more dispersed are analysts’ earnings forecasts. Moreover, as the proportion of assets measured at fair value increases, properties of analysts’ forecasts become less desirable, showing a decrease in the precision of public or private information. The informational properties of fair value disclosure decrease as we move from level 2 to mark-to-model data (level 3). Nevertheless, additional analyses suggest that the disclosure of levels has been beneficial to investors as it enhanced private information precision resulting in more accurate and less dispersed analysts’ forecasts. Finally, the disclosure about the valuation of assets that are measured at fair value on a non-recurring basis reduces accuracy and public information precision while enhancing dispersion. <P>La récente crise financière a amené une réévaluation du rôle que l’utilisation de la comptabilité à la juste valeur peut avoir sur la stabilité du système bancaire. Suite à l’intervention des organismes de réglementation des banques et de certains gouvernements, les normalisateurs comptables ont élaboré davantage les paramètres de mise en œuvre de la comptabilité à la juste valeur. Cette recherche examine si et comment l’utilisation de la comptabilité à la juste valeur par les banques américaines entre 1996 et 2009 a influencé la qualité de l’information accessible aux analystes financiers pour la préparation de leurs prévisions. Nos résultats montrent, qu’en général, plus grande est la proportion de l’actif et du passif d’une banque qui repose sur la comptabilité à la juste valeur, plus grande est la dispersion des prévisions de bénéfices effectuées par les analystes. En outre, une augmentation de la proportion de l’actif mesuré à la juste valeur est associée avec un environnement informationnel moins favorable pour les analystes (diminution dans la précision de l’information privée et de l’information publique). Cet effet est accentué pour l’actif ou le passif mesuré de niveau 3 (mesure selon modèle). Cependant, la décision récente de divulguer les niveaux d’évaluation à la juste valeur (niveaux 1, 2 et 3) a amélioré la précision et le consensus des prévisions de bénéfice des analystes. Finalement, la divulgation de l’évaluation d’actifs qui sont mesurés à la juste valeur mais sur une base ponctuelle et non-récurrente semble réduire la précision des prévisions de bénéfice.
    Keywords: Fair value accounting, governance, risk management, earnings forecasts analysts, valuation of assets disclosure, Comptabilité à la juste valeur, gouvernance, prévisions de bénéfices des analystes, divulgation de l’évaluation d’actifs
    Date: 2011–08–01
  10. By: Cai, Jing; Harrison, Ann
    Abstract: This explores the impact of a tax reform in some provinces of China which eliminated the value-added tax on some investment goods. While the goal of the experiment was to encourage upgrading of technology, the results suggest that there was no evident increase overall in fixed investment, and employment fell significantly in the treated provinces and sectors. The reform reduced the total number of employees for all types of firms. For domestic firms, it reduced employment by almost 8 percent. The results are robust to a variety of approaches, and suggest that the primary impact of the policy has been to induce labor-saving growth. This experiment has since been extended to the rest of China.
    Keywords: Taxation&Subsidies,Investment and Investment Climate,Debt Markets,Emerging Markets,Economic Theory&Research
    Date: 2011–09–01
  11. By: Christian Bauer (University of Munich); Ronald B. Davies (University College Dublin; Institute for International Integration Studies, Trinity College Dublin); Andreas Haufler (University of Munich)
    Abstract: We study the optimal combination of corporate tax rate and tax base in a model of a small open economy with heterogeneous firms. We show that it is optimal for the small country's government to effectively subsidize capital inputs by granting a tax allowance in excess of the true costs of capital. Economic integration reduces the optimal capital subsidy and drives low-productivity firms from the small country's home market, replacing them with high-productivity exporters from abroad. This endogenous policy response creates a selection effect that increases the average productivity of home firms when trade barriers fall, in addition to the well-known direct effects.
    Keywords: corporate tax reform, trade liberalization, firm heterogeneity
    JEL: H25 H87 F15
    Date: 2011–08
  12. By: Ojo, Marianne
    Abstract: In response to the recent Financial Crisis - after it had been widely accepted that “a serious disturbance in the economy of Member States” had occurred, and that several measures were required to remedy this disturbance, various Commission communications were adopted. The Communications include: The first Communication which (initially), was the only one that the Commission adopted intentionally: the Communication on the application of State aid rules to measures taken in relation to financial institutions in the context of the current global financial crisis (hereinafter "the Banking Communication"). However, faced with the pressure to issue more guidelines (such pressure being exerted by Member States), the Commission adopted three further Communications: the Communication on the re capitalisation of financial institutions in the current financial crisis: limitation of aid to the minimum necessary and safeguards against undue distortions of competition (hereinafter "the Recapitalisation Communication"); the Communication “On the treatment of impaired assets in the Community banking sector” (hereinafter, “the Toxic Assets Comunication”) and finally, the Communication on the return to viability and the assessment of restructuring measures in the financial sector in the current crisis under the State aid rules (hereinafter "the Restructuring Communication").” Whilst the Banking and Re capitalisation Communications constituted the focus of study in Part I to this paper, this paper will focus on the impact of shadow banking and Basel III on regulatory arbitrage, the corresponding need for greater transparency and disclosure within financial markets – particularly within OTC markets, and impediments to the successful implementation of capital requirements which are aimed at fostering financial stability, coordination and harmonisation. Further, it will consider the extent to which regulators are prepared to deviate from regulations during the implementation of stress-testing and rescue programmes which are aimed at restoring stability to the financial system. The redefinition of quantitative and qualitative standards for capital, in implementing the Supervisory Capital Assessment Programme (SCAP), as illustrated in the paper, should demonstrate the extent to which regulators, independent of shadow banking practices, are prepared to deviate from capital regulations under adverse scenarios where certain regulations prove to be unduly stringent.
    Keywords: Financial Crisis; state aids; recapitalisation; regulatory arbitrage; shadow banking; Basel III; supervision; financial stability; OTC markets; counter party risks; stress testing; Supervisory Capital Assessment Program (SCAP); market discipline
    JEL: D0 K2 D8 E3
    Date: 2011–09–09

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