nep-acc New Economics Papers
on Accounting and Auditing
Issue of 2011‒12‒13
fourteen papers chosen by
Alexander Harin
Modern University for the Humanities

  1. Capital Income Taxation and Progressivity in a Global Economy By Rosanne Altshuler; Benjamin Harris; Eric Toder
  2. Alleged Tax Competition: The Mysterious Death of Bequest Taxes in Switzerland By Brülhart, Marius; Parchet, Raphaël
  3. Understanding U.S. Corporate Tax Losses By Rosanne Altshuler; Alan Auerbach; Michael Cooper; Matthew Knittel
  4. The Effect of Low Corporate Tax Rate on Payroll Tax Evasion By Boryana Madzharova
  5. Examining dual accounting systems in Europe. By Macías Dorissa, Marta Pilar; Muiño Vázquez, Flora
  6. Tax Evasion and Presumptive Taxation Methods. A Case Study in Italy: Sector Studies By Giuseppe Pulina
  7. Abstinence with Reputation Loss, Understating Expectations and Guiltand the Effectiveness of Emission Tax By Amnon Levy
  8. A Site Value Tax for Ireland: Approach, Design and Implementation By Micheal L. Collins; Adam Larragy
  9. European Accounting Harmonisation: Consequences of IFRS Adoption on Trade in Goods and Foreign Direct Investments By Laura Márquez-Ramos
  10. Optimal Taxation of Top Labor Incomes: A Tale of Three Elasticities By Piketty, Thomas; Saez, Emmanuel; Stantcheva, Stefanie
  11. Debt shifting in Europe By Raffaele Miniaci; Paolo Panteghini; Maria Laura Parisi
  12. Tax decentralization and public deficits in OECD countries By Baskaran, Thushyanthan
  13. The Marginal Cost of Public Funds and Tax Reform in Africa. By Auriol, Emmanuelle; Warlters, Michael
  14. How Much Do R&D Tax Credits Affect R&D Expenditures? Japanese tax credit reform in 2003 By KASAHARA Hiroyuki; SHIMOTSU Katsumi; SUZUKI Michio

  1. By: Rosanne Altshuler (Rutgers University, Department of Economics); Benjamin Harris (Brookings Institution); Eric Toder (Urban-Brookings Tax Policy Center)
    Abstract: The increase in international capital mobility over the past two decades has put pressure on the tax treatment of corporate equity income. Corporate-level taxes distort investment flows across locations and create opportunities for tax avoidance by shifting income across jurisdictions. Outward flows of capital shift part of the burden of the corporate-level tax on equity income from capital to labor, thereby making its incidence less progressive. Individual-level taxes on corporate equity income lower the after-tax return to savings but have less distorting effects on investment location and are more likely to fall on owners of capital than workers. This logic suggests there may be both efficiency gains and increases in progressivity from shifting taxes on corporate equity income from the corporate to the shareholder level. We estimate the distributional effects of a tax reform that raises shareholder-level taxes on corporate equity income and uses the revenue to cut the corporate tax rate. We find that taxing capital gains and dividends as ordinary income (subject to a maximum 28% rate on long-term capital gains) would finance a cut in the corporate tax rate from 35% to about 26%, assuming no behavioral response. While the distributional effect depends on what one assumes about the incidence of the corporate income tax, our results suggest that even if the corporate income tax were paid entirely by capital income, the reform would make the tax system more progressive.
    Keywords: corporate taxation, individual taxation
    JEL: H20 H24 H25
    Date: 2011–05–18
  2. By: Brülhart, Marius; Parchet, Raphaël
    Abstract: Interjurisdictional competition over mobile tax bases is an easily understood mechanism, but actual tax-base elasticities are difficult to estimate. Political pressure for reducing tax rates could therefore be based on erroneous estimates of the mobility of tax bases. We show that tax competition provided the most prominent argument in the policy debates leading to a succession of reforms of bequest taxation by Swiss cantons. Yet, we find only very weak statistical evidence of a relationship between tax burdens on bequests and the concerned tax base of wealthy elderly individuals. Moreover, bequest tax revenues are found to increase in bequest tax rates even in the long run, and we cannot reject the hypothesis that the elasticity of bequest tax revenue with respect to the average bequest tax rate is equal to one. The alleged pressures of tax competition did not seem in reality to exist.
    Keywords: bequest taxation; fiscal federalism; tax competition
    JEL: H3 H7
    Date: 2011–11
  3. By: Rosanne Altshuler (Rutgers University, Department of Economics); Alan Auerbach (University of California, Berkeley); Michael Cooper (Department of Treasury, Office of Tax Analysis); Matthew Knittel (Department of Treasury, Office of Tax Analysis)
    Abstract: Recent data on corporate tax losses presents a puzzle this paper attempts to explain: the ratio of losses to positive income was much higher around the recession of 2001 than in earlier recessions, even those of greater severity. Using a comprehensive sample of U.S. corporation tax returns for the period 1982-2005, we explore a variety of potential explanations for this surge in tax losses, taking account of the significant use of executive compensation stock options beginning in the 1990s and recent temporary tax provisions that might have had important effects on taxable income. We find that losses rose because the average rate of return of C corporations fell, rather than because of an increase in the dispersion of returns or an increase in the gap between corporate profits subject to tax and corporate profits as measured by the national income accounts. Our analysis also suggests that the increasing importance of S corporations may help explain the recent experience within the C corporate sector, as S corporations have exhibited adifferent pattern of losses in recent years. However, we can identify no simple explanation for the differing experience of C and S corporations. Our investigation concludes with some new puzzles: why did rates of return of C corporations fall so much early in the decade and why has the incidence of losses among C and S corporations diverged?
    Keywords: corporate taxation, tax losses
    JEL: H25
    Date: 2011–05–18
  4. By: Boryana Madzharova
    Abstract: It is a commonly held view that the widespread policy of cutting the corporate income tax has a positive effect on taxable income through decreasing firms' incentive to hide profits. A neglected side of this policy, however, is its potential to trigger more evasion in other tax bases, such as the social security base, especially if the corporate income tax rate is low compared to the payroll rate. We develop a model in which employers and employees cooperate in declaring lower wages to the tax authorities in order to evade payroll contributions. Since wages and payroll taxes are a deductible expense for firms, a lower reported wage translates into higher corporate profits on paper and hence, shifting of tax liability out of social security into the corporate tax base. Using firm-level panel data for Bulgaria, where the problem of contribution evasion is prevalent, we find that a 1% increase in the net-of-tax-share of the corporate tax rate reduces reported wages in the economy by .21%, but leads to higher taxable incomes. An identical increase in the payroll net-of-tax-share results in a .28% rise in wages. Thus, even though the separate tax bases respond significantly to changes in the corporate tax rate, the impact on the combined tax base of wages and taxable incomes is estimated to be small.
    Keywords: corporate tax; payroll tax; evasion; wage underreporting;
    JEL: H25 H26 H55 J3
    Date: 2011–09
  5. By: Macías Dorissa, Marta Pilar; Muiño Vázquez, Flora
    Abstract: After adoption of International Financial Reporting Standards (IFRS) for consolidated financial statements by European listed companies, a number of European countries still require the use of local standards in the preparation of legal entity financial statements. This study investigates whether this requirement can be explained by a low demand for high quality financial reporting and an orientation of accounting toward the fulfilment of regulatory needs in these countries. Specifically, using accounting quality as an indicator of the focus of accounting on capital providers' needs, we compare accounting quality between countries permitting and prohibiting the use of IFRS in individual financial statements. Consistent with our expectations, we find that countries requiring the use of local standards in the preparation of legal entity financial statements exhibit a significantly lower level of accounting quality, both prior to and after IFRS adoption. We interpret these results as evidence that these countries have local standards more oriented toward the satisfaction of regulatory needs, rather than investors' needs. Furthermore, since differences in accounting quality persist after the implementation of IFRS, results suggest that firms in these countries face a lower demand for high quality financial reporting
    Keywords: IFRS endorsement; Accounting quality; Value relevance; Domestic GAAP;
    Date: 2011–03
  6. By: Giuseppe Pulina
    Abstract: In this paper we analyze a fiscal mechanism used in Italy, which in Italian is called “Studi di Settore” (Sector Studies). This mechanism relies on information gathered on taxpayers to both partition the population into fairly homogeneous clusters and to determine the presumed income they should declare. When this estimated income is announced, before taxpayers fill out their tax returns, their optimal declaration strategies lead the tax- payer population to be naturally split into three homogeneous groups, one of which pays more taxes than are due, the second group comply but bears the audit cost, while the third evades and it is not audited. This result is close to the Italian situation where the greatest number of taxpayers make a tax declaration according to the announced cluster income, but there are always those who declare less and so are audited.
    Keywords: Tax Evasion; "cut-off" policy; Noncooperative games; Asymmetric Information
    JEL: H26 H32 D82 C72
    Date: 2011
  7. By: Amnon Levy (University of Wollongong)
    Abstract: The responsibility for, and consequences of, greenhouse gas emissions are shared by all countries, but only a few are willing to tax emissions. The paper argues that the reactions of the abstaining countries are crucial for assessing the effectiveness of the tax. The paper analyzes an interaction between a tax-collecting and investing coalition of rich countries, abstaining rich countries and poor countries. The non-coalition countries might have loss of reputation and guilt and overstate the tax’s emission-moderating effect. As long as these three types of countries react to their counterparts’ emissions, taxing emissions does not necessarily reduce the global emissions.
    Keywords: Emission Tax; Abstinence; Understating Expectations; Guilt; Global Emissions
    JEL: Q52
    Date: 2011
  8. By: Micheal L. Collins (Department of Economics, Trinity College Dublin, Ireland); Adam Larragy (Royal Holloway, University of London, United Kingdom)
    Abstract: Ireland’s Memorandum of Understanding (MoU) with the EU/IMF requires government to introduce a recurring annual property tax. While the MoU has not specified the precise form this new taxation measure will adopt, commitments in the National Recovery Plan 2011-2014 and Fine Gael/Labour Programme for Government have pointed towards the introduction of an annual Site Value Tax (SVT). Budget 2011 suggested that the yield from this tax source would grow from €180m in 2012 to reach €530m in 2014. Similarly the MoU commits government to raising additional taxation revenues of €1.5bn in 2012 and €1.1bn in 2013 with both to be partly funded by a property tax and increases to that tax. To date assessments of the feasibility of a SVT (by the Commission of Taxation and the Department of Finance) have pointed towards a series of practical difficulties associated with its introduction. This paper outlines a proposal to overcome these difficulties and to introduce a credible, fair and reliable annual SVT from January 2013. The paper uses the land registry database of the Property Registration Authority of Ireland (PRAI) to outline the structure and administration of a SVT.
    Keywords: Taxation, Property, Fiscal Policy, Ireland
    JEL: H22 H27 H71
    Date: 2011–12
  9. By: Laura Márquez-Ramos (Department of Economics and Institute of International Economics, UniversitatJaume I)
    Abstract: This paper focuses on the importance of accounting harmonisation in foreign activities at country level. The adoption of International Financial Reporting Standards (IFRS) is considered to reduce information costs among countries and, therefore, encourage international trade in goods and investment. The results provide evidence that benefits exist in terms of trade in goods and foreign direct investments (FDI) when IFRS are adopted.
    Keywords: IFRS, trade in goods, FDI, gravity
    JEL: F40
    Date: 2011
  10. By: Piketty, Thomas; Saez, Emmanuel; Stantcheva, Stefanie
    Abstract: This paper analyzes the problem of optimal taxation of top labour incomes. We develop a model where top incomes respond to marginal tax rates through three channels: (1) the standard supply-side channel through reduced economic activity, (2) the tax avoidance channel, (3) the compensation bargaining channel through efforts in influencing own pay setting. We derive the optimal top tax rate formula as a function of the three elasticities corresponding to those three channels of responses. The first elasticity (supply side) is the sole real factor limiting optimal top tax rates. The optimal tax system should be designed to minimize the second elasticity (avoidance) through tax enforcement and tax neutrality across income forms, in which case the second elasticity becomes irrelevant. The optimal top tax rate increases with the third elasticity (bargaining) as bargaining efforts are zero-sum in aggregate. We then analyze top income and top tax rate data in 18 OECD countries. There is a strong correlation between cuts in top tax rates and increases in top 1% income shares since 1975, implying that the overall elasticity is large. But top income share increases have not translated into higher economic growth, consistent with the zero-sum bargaining model. This suggests that the first elasticity is modest in size and that the overall effect comes mostly from the third elasticity. Consequently, socially optimal top tax rates might possibly be much higher than what is commonly assumed.
    Keywords: optimal income taxation
    JEL: H21
    Date: 2011–11
  11. By: Raffaele Miniaci (Universita di Brescia); Paolo Panteghini (Universita di Brescia); Maria Laura Parisi (Universita di Brescia)
    Abstract: This article aims to analyze the link between subsidiary capital structure and taxation in Europe. First we introduce a trade-off model, which looks at a MNC’s financial strategy and in particular debt shifting from low-tax to high-tax jurisdictions. By letting the MNC choose both leverage and the profit shifting percentage, we depart from the relevant literature which has mainly focused on the latter. Using the AMADEUS dataset we show that: i) in line with the relevant literature, subsidiary leverage increases with its statutory tax rate; ii) contrary to previous work, if a parent company is located in a high-tax country and its subsidiary is making profit, an increase in the parent company’s tax rate has a positive impact on the subsidiary’s leverage.
    Keywords: capital structure, default, debt shifting, multinationals, taxation
    JEL: G31 H25 H32
    Date: 2011
  12. By: Baskaran, Thushyanthan
    Abstract: This article explores the effect of sub-national tax autonomy and sub-national control over shared taxes on primary deficits with panel data for 23 OECD countries over the 1975-2000 period. The results suggest that sub-national tax autonomy has a U-shaped effect on primary deficits. We find that the “average” country in the sample could increase the fiscal stability of its public sector by reducing sub-national tax autonomy. There is also some indication that subnational control over shared taxes increases fiscal stability, but we obtain this result only if Belgium and Spain are included in the sample.
    Keywords: Tax decentralization; Public deficits; Fiscal instability
    JEL: H77 H72 H74
    Date: 2011
  13. By: Auriol, Emmanuelle; Warlters, Michael
    JEL: D43 H25 H26 H60
    Date: 2012–01
  14. By: KASAHARA Hiroyuki; SHIMOTSU Katsumi; SUZUKI Michio
    Abstract: How much do tax credits affect firms' R&D activities? What are the mechanisms? Few empirical studies directly examine the effect of tax credit policies on firms' R&D investments and the importance of financial constraints on the policy effects on R&D. This paper examines the effect of the Japanese tax credit reform in 2003 on firms' R&D investments by exploiting cross-firm variation in the changes in the effective tax credit rate between 2002 and 2003. Regression results suggest a significantly positive effect of the change in the effective tax credit rate on corporate R&D investments. Across different specifications, the estimated (semi-) elasticity of R&D investments with respect to the effective tax credit rate is 2.3 with an approximate standard error of 0.6. We also examine the policy implications of financial constraints on R&D investments and find that the effect of tax credits is significantly larger for firms with relatively large outstanding debt.
    Date: 2011–11

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.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.