nep-acc New Economics Papers
on Accounting and Auditing
Issue of 2011‒10‒22
twelve papers chosen by
Alexander Harin
Modern University for the Humanities

  1. Tax Expenditures for Promoting Investment Applied to Corporate Income Tax By Juan C. Gómez Sabaini; Pedro Velasco
  2. Optimal income taxation with tax avoidance By Casamatta, Georges
  3. The Tax Reform Act of 1986: Comment on the 25th Anniversary By Martin S. Feldstein
  4. Tax Reforms in EU Member States 2011: tax policy challenges for economic growth and fiscal sustainability By European Commission
  5. International Debt Shifting: Do Multinationals Shift Internal or External Debt? By Jarle Møen; Dirk Schindler; Guttorm Schjelderup; Julia Tropina
  6. Political competition and leadership in tax competition By Rupayan Pal; Ajay Sharma
  7. The Value-Added Tax Reform Puzzle By Jing Cai; Ann Harrison
  8. Methodology for Measuring the Fiscal Effect of Regional Expenditures in Colombia By Michael Jorratt
  9. Government Policy and Ownership of Financial Assets By Kristian Rydqvist; Joshua Spizman; Ilya A. Strebulaev
  10. Evaluation of the Effectiveness and Efficiency of Tax Benefits By Jerónimo Roca
  11. Distortionary Taxes and Public Investment in a Model of Endogenous Investment Specific Technological Change By Bishnu, Monisankar; Ghate, Chetan; Gopalakrishnan, Pawan
  12. Risk management and the implementation of the Basel Accord in emerging countries: An application to Pakistan. By Masood, Omar; Fry, J. M.

  1. By: Juan C. Gómez Sabaini; Pedro Velasco
    Abstract: This report was commissioned by the Inter-American Development Bank's Fiscal and Municipal Management Division of the Institutional Capacity and Finance Sector within the framework of the project Tax Expenditures: Reducing Abuse and Increasing Effectiveness. It tackles controversial questions regarding the interpretation, criteria, and estimation methodologies of tax expenditures in the field of corporate income tax aimed at encouraging investment. It is intended to provide the basis for a dialogue, which could be further developed, leading to the future establishment of tax expenditure estimation directives for Latin American and Caribbean countries, and thereby contributing to the comparison of tax expenditure measurement processes.
    Keywords: Economics :: Fiscal Policy, Private Sector :: Business Development, Tax Expenditures; Tax; Expenditures; Investment; Corporate Income Tax;
    JEL: H50
    Date: 2010–10
  2. By: Casamatta, Georges
    Abstract: We follow the approach of Grochulski (2007), who determines the optimal income tax schedule when individuals have the possibility of avoiding paying taxes. We however modify his setup by considering a convex concealment cost function. This assumption violates the subadditivity property used in Grochulski (2007) and this has strong implications for the design of the tax schedule. This latter indeed shows that, with subadditivity, all individuals should declare their true income. Tax avoidance is thus not optimal. With a convex cost function, we find that a subset of individuals, located in the interior of the income distribution, should be allowed to avoid taxes, provided that the marginal cost of avoiding the first euro is suciently small. We also provide a characterization of the optimal income tax curve.
    Keywords: fiscal avoidance; optimal income tax
    JEL: H21
    Date: 2011–10
  3. By: Martin S. Feldstein
    Abstract: The Tax Reform Act of 1986 was a powerful pro-growth force for the American economy. Equally important, as we look back on it after 25 years, we also see that it taught us two important lessons. First, it showed that politicians with very different political philosophies on the right and on the left could agree on a major program of tax rate reduction and tax reform. Second, it showed that the amount of taxable income is very sensitive to marginal tax rates. More specifically, the evidence based on the 1986 tax rate reductions shows that the response of taxpayers to reductions in marginal tax rates offsets a substantial portion of the revenue that would otherwise be lost. This implies that combining a broadening of the tax base that raises revenue equal to 10 percent of existing personal income tax revenue with a 10 percent across the board cut in all marginal tax rates would raise revenue equal to about four percent of existing tax revenue. With personal income tax revenue in 2011 of about $1 trillion, that four percent increase in net revenue would be $40 billion at the current level of taxable income or more than $500 billion over the next ten years.
    JEL: H0 H2 H21 H3 H31
    Date: 2011–10
  4. By: European Commission (European Commission)
    Abstract: Fiscal sustainability and economic growth are key concerns at the current juncture. The focus of tax policy has now shifted away from stimulus measures towards a much needed consolidation of public finances, made even more necessary in light of the difficulties currently faced by some Member States in refinancing their sovereign debt. At the same time, tax policies may play an important role in enhancing the growth potential of the EU economy, which is a goal per se but also a condition for making public finance sustainable. A growth-friendly tax structure is particularly important to cope with today's policy challenges. As a background for the analysis, the 2011 issue of the report ‘Tax reforms in EU Member States’, subtitled this year as ‘Tax policy challenges for economic growth and fiscal sustainability’, provides an overview of recent trends in tax revenues and of tax measures adopted in Member States in 2010 and the first half of 2011. In addition to these descriptive chapters, this year's report provides an analytical focus on two topics of particular relevance at the current juncture. The first analytical chapter of the report addresses the multi-faceted concept of the quality of taxation – particularly relevant for any future tax reforms – with a particular focus on the tax structure. A ‘good’ tax system should design taxes so as to reduce distortions to the minimum possible and, where appropriate, correct market failures. Well-designed tax reforms promoting employment and growth can go hand in hand with social equity. To avoid adverse interaction between cross-country tax systems, tax policies should benefit from an efficient coordination at the EU level. The second analytical chapter discusses three types of potential challenges in the area of tax policy currently faced by EU Member States: (i) addressing severe fiscal consolidation challenges also on the revenue side, (ii) making the overall tax structure more growth friendly and (iii) improving the design of the tax system for individual types of taxes. Applying an indicator-based approach, the report identifies in which euro-area Member States higher tax revenues might potentially contribute to consolidation and which countries might benefit from a shift from labour taxes, in particular those bearing on vulnerable groups, to consumption and real estate taxes. Analysing more specific horizontal challenges related to the design of individual taxes, the report concludes that almost all euro-area Member States face at least one challenge.
    Keywords: financial crisis, tax policy, taxation, fiscal consolidation
    JEL: H21 H22 H23 H25 H27 H62
    Date: 2011–10
  5. By: Jarle Møen (Department of Finance and Management Science, Norwegian School of Economics, 5045 Bergen, Norway); Dirk Schindler (Department of Economics, University of Konstanz, Germany); Guttorm Schjelderup (Department of Finance and Management Science, Norwegian School of Economics, 5045 Bergen, Norway); Julia Tropina (Department of Economics, Norwegian School of Economics, 5045 Bergen, Norway)
    Abstract: We examine the capital structures of multinational companies. Multinational companies can exploit the tax advantage of debt more aggressively than national companies by shifting debt from affiliates in low-tax countries to affiliates in high-tax countries. Previous papers have omitted either internal debt or external debt from the analysis. We are the first to model the companies’ choice between internal and external debt shifting, and show that it is optimal to use both types of debt in order to save taxes. Using a large panel of German multinationals, we find strong empirical support for our model. The estimated coefficients suggest that internal and external debt shifting are of about equal relevance.
    Keywords: Corporate taxation, multinationals, capital structure, international debt-shifting, tax avoidance
    JEL: H25 G32 F23
    Date: 2011–10–07
  6. By: Rupayan Pal (Indira Gandhi Institute of Development Research); Ajay Sharma (Indira Gandhi Institute of Development Research)
    Abstract: In this paper, we introduce political competition in a sequential move tax competition game between two regions for foreign owned mobile capital. It shows that in case of sequential move, political delegation takes place only in the follower region, not in the leader region. Moreover, political competition need not necessarily lead to higher tax rate in equilibrium. These results are in the sharp contrast to the existing results.
    Keywords: Mobile capital, Tax competition, Political competition, Leadership, Public good
    JEL: F21 H25 D70 H42 D40 R50
    Date: 2011–10
  7. By: Jing Cai; Ann Harrison
    Abstract: We explore 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, our 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%. Our 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.
    JEL: F21 F23 H25
    Date: 2011–10
  8. By: Michael Jorratt
    Abstract: The concept of tax expenditure refers to the revenue the treasury foregoes as a result of applying preferential tax regimes with a view to aiding or stimulating certain economic sectors, activities, regions, or agents. Defined in this way, tax expenditures are additional tools for governments to utilize in state intervention, which aim to achieve similar results to those that can be obtained through direct public expenditure. As such, they should be subject to the same controls and transparency criteria as the latter. The general objective of this paper is to develop a methodology to estimate tax expenditures at a regional level, based on the particular case of Colombia.
    Keywords: Economics :: Fiscal Policy, Colombia; Fiscal Effect; Regional Tax Expenditures
    Date: 2010–06
  9. By: Kristian Rydqvist; Joshua Spizman; Ilya A. Strebulaev
    Abstract: Since World War II, direct stock ownership by households across the globe has largely been replaced by indirect stock ownership by financial institutions. We argue that tax policy is the driving force. Using long time-series from eight countries, we show that the fraction of household ownership decreases with measures of the tax benefits of holding stocks inside tax-deferred plans. This finding is important for policy considerations on effective taxation and for financial economics research on the long-term effects of taxation on corporate finance and asset prices.
    JEL: G10 G20 H22 H30
    Date: 2011–10
  10. By: Jerónimo Roca
    Abstract: This paper analyzes the role of fiscal incentives in developing countries and provides a theoretical evaluation of benefits and costs of certain taxes. It also reviews the most notable characteristics of tax incentives frequently granted in Latin America are revised. Special attention is paid to their effectiveness, administration costs, and distortions in allocating resources.
    Keywords: Economics :: Fiscal Policy, Effectiveness; Efficiency; Tax Benefits
    Date: 2010–06
  11. By: Bishnu, Monisankar; Ghate, Chetan; Gopalakrishnan, Pawan
    Abstract: We construct a model of endogenous investment specific techological change in which the stock of public capital influences the real price of capital goods. We show that the growth and welfare maximizing tax rates coincide in the planned economy. When factor income taxes finance public investment infintely many tax-subsidy combinations can decentralize the planner's allocations. The optimal capital income tax can be positive in this environment. We then augment the model to incorporate administrative costs. A unique combination of factor income taxes now decentralizes the planner's allocations. A simple calibration exercise suggests that changes in factor income taxes does not cause a significant change in the optimal growth rate or welfare. Our framework broadens the environment in which investment specific technological change occurs, and characterizes the role of optimal factor income taxation in raising long run growth and welfare.
    Keywords: Investment Specific Technological Change; Endogenous Growth; Capital Income Taxation; Public Policy; Administrative Costs
    JEL: E2 H2 E6 O4
    Date: 2011–10–14
  12. By: Masood, Omar; Fry, J. M.
    Abstract: This paper addresses an important contemporary issue; namely the implementation of the Basel Accord worldwide. The Basel Accord provides a series of measures to improve the stability of the world’s financial system but its implementation poses a number of challenges for both developing and emerging economies. Pakistan faces a number of unique challenges in this regard due to its recent economic expansion and the fact that the rate at which the Basel Accord is being adopted lags behind that of other countries. This paper throws light on this and a number of related issues due to a combination of the novelty of the survey data from risk managers coupled with a rigorous statistical analysis. Results reflect that the Basel Accord is generally well regarded due to its underlying aims of improved capital standards and a scientific treatment of risk. However, operational risk emerges as a key barrier to implementation in Pakistan. A number of further obstacles are highlighted, which, do seem to have been addressed although only with a partial degree of success. Privately owned banks appear to be more technically competent and more favourably disposed towards implementation than publicly owned banks.
    Keywords: Risk Management; Basel Accord; Banking; Financial Regulation; Emerging Markets
    JEL: C10 O53 G21
    Date: 2011–10–17

This nep-acc issue is ©2011 by Alexander Harin. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
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