nep-acc New Economics Papers
on Accounting and Auditing
Issue of 2012‒01‒18
eight papers chosen by
Alexander Harin
Modern University for the Humanities

  1. Audit pricing in a reformed nonprofit market By S. VERBRUGGEN; J. CHRISTIAENS; A. REHEUL; T. VAN CANEGHEM
  2. A Tale of Tax Policies in Open Economies By Stéphane Auray; Aurélien Eyquem; Paul Gomme
  3. How Do Taxes Affect Investment When Firms Face Financial Constraints? By Martin Simmler
  4. Do EU15 countries compete over labour taxes? By B. MERLEVEDE; G. RAYP; S. VAN PARYS; T. VERBEKE
  5. Corporate Debt Value with Switching Tax Benefits and Payouts By Flavia Barsotti; Maria Elvira Mancino; Monique Pontier
  6. The EU Apportionment Formula: Insights from a Business Case By A. ROGGEMAN; I. VERLEYEN; P. VAN CAUWENBERGE; C. COPPENS
  7. Unanticipated vs. Anticipated Tax Reforms in a Two-Sector Open Economy. By Olivier Cardi; Romain Restout

    Abstract: In contrast to the extant research on audit fees of for-profit companies, literature on nonprofit audit fees is scant. In this paper, audit fee determinants of previous research are tested in a nonprofit market that is characterized by a relatively low dominance of BIG4 auditors, low litigation risk, small nonprofit entities, high levels of subsidization and recent legislative reforms. Using OLS on a sample of nonprofit entities, we find that some known determinants such as auditor size and client complexity hold their ground. However, our findings on client profitability and auditor industry specialization show that refinements of audit fee models need to incorporate audit market characteristics, agency problems and signaling.
    Keywords: Audit, Financial audit, Nonprofit organizations, Audit fee, Auditor specialization, Resource dependence
    Date: 2011–12
  2. By: Stéphane Auray (CREST (Ensai), Université du Littoral Côte d’Opale (EQUIPPE), Université de Shebrooke (GREDI) and CIRPEE); Aurélien Eyquem (Université de Lyon, Lyon, F-69007, France ; Ecole Normale Supérieure de Lyon, Lyon, F-69007, France ; CNRS, GATE Lyon St Etienne, Ecully, F-69130, France ; and GREDI, Canada); Paul Gomme (Concordia University and CIREQ)
    Abstract: Recent financial crises in Europe as well as the periodic battles in the U.S. over the debt ceiling point to the importance of fiscal discipline among developed countries. This paper develops an open economy model, calibrated to the U.S. and a subset of the EMU, to evaluate the impact of various permanent tax changes. The first set of experiments considers a targeted one percentage point reduction in the government deficit-to-GDP ratio through raising one of : the consumption tax, the labor income tax, or the capital income tax. In terms of welfare, the consumption tax is found to be the least costly of the tax increases. A second set of experiments looks at deficit-neutral tax changes : partially replacing the capital income tax with either a higher labor income tax or higher consumption tax ; and partially replacing the labor income tax with an increased consumption tax. Reducing reliance on capital income taxation is welfare-enhancing, although it leads to short term losses. Reducing labor income taxation improves international competitiveness and is welfare-improving.
    Keywords: Fiscal policies, open economies, public deficits, tax reforms
    JEL: E31 E62 F41
    Date: 2011
  3. By: Martin Simmler
    Abstract: This study uses a switching regression framework with known sample separation to analyze the effects of corporate income taxation on investment in case of binding and non-binding financial constraints. By employing two different sample splitting criteria, payout behavior and the ratio of liabilities to total assets, I show that the elasticity of capital to its user costs in an auto-distributed-lag model is underestimated in case of neglecting the presence of financial constraints. For unconstrained firms, the elasticity of capital to its user costs is around -1. For financially constrained firms the elasticity is statistically not different from zero. For the latter group instead, the results prevail by using the effective average tax rate to measure liquidity outflow through taxation that corporate taxation affects investment through changing internal finance. In addition, this study helps to understand the methodological differences between auto-distributed-lag and error-correction models.
    Keywords: Investment cash flow sensitivity, financial constraints, taxation, effective average tax rate, effective marginal tax rate, switching regression
    JEL: H25 H32 G31
    Date: 2012
    Abstract: Empirical research on international tax competition has mainly considered cor- porate taxation. Because of the limited international mobility of labour, labour tax competition tends to be overlooked. This may be unjusti…ed. The tax base in labour taxation is the wage mass that depends on employment. While labour is largely in- ternationally immobile, jobs are certainly not because of the international mobility of goods. Given the higher share of labour tax in government revenues, labour tax competition could also have more important welfare consequences than corporate tax competition. We model the possibility of labour tax competition using a standard Dixit-Stiglitz two-country model with immobile …rms and workers and transportation costs in exporting goods. The model is extended with the assumptions of non-clearing labour markets and income redistribution by the government, …nanced by a labour tax. The model results in an empirical speci…cation of the labour tax reaction function in the form of a spatial lag panel. The tax reaction function is then estimated for the EU15 member states using an instrumental variable approach. Our results point to the presence of small, but signi…cant labour tax competition within the EU15.
    Keywords: tax competition, labour tax, spatial autocorrelation, strategic interactions.
    JEL: H0 H25 H77
    Date: 2011–10
  5. By: Flavia Barsotti (Dipartimento di Matematica per le Decisioni, Universita' degli Studi di Firenze); Maria Elvira Mancino (Dipartimento di Matematica per le Decisioni, Universita' degli Studi di Firenze); Monique Pontier (Institut Mathem. de Toulouse (IMT), University of Toulouse, France)
    Abstract: This paper analyzes a structural model of corporate debt in the spirit of Leland (1994) model within a more realistic general context where payouts and asymmetric tax-code provisions are introduced. We analytically derive the value of the tax benefit claim in this context and study the joint effect of tax asymmetry and payouts on optimal corporate financing decisions. Results show a quantitatively significant impact on both optimal debt issuance and leverage ratios, thus providing a way to explain differences in observed leverage across firms.
    Keywords: structural model, corporate debt, endogenous bankruptcy, optimal stopping, tax benefits of debt
    JEL: G32 G33
    Date: 2011–12
    Abstract: First, this paper gives an overview of the progress Europe has made in its development of a Common Consolidated Corporate Tax Base (CCCTB). Second, we use firm level data from a listed multinational to investigate how several designs for the CCCTB apportionment formula could affect the allocation of the consolidated tax base. The design is relevant in the light of member states’ concern for protecting their tax revenues, as well as for the multinational companies’ tax minimizing possibilities. Moreover, it plays an important role in achieving an efficient and simple tax system. Simulating different apportionment formulas, the results show that including more factors and using more equal weights distributes the common tax base more equally, which could reduce the incentive to shift factors from high to low tax countries. The results also indicate that simplifying the factor definitions, leads to rather minor changes in the allocation. Using unpublished data, this study allows to investigate the consequences of different formulas in detail, which contributes to the current discussion on corporate tax harmonization in the EU.
    Keywords: CCCTB, corporate tax, European Union, apportionment formula
    Date: 2011–10
  7. By: Olivier Cardi; Romain Restout
    Abstract: We use a two-sector neoclassical open economy model with traded and non-traded goods to investigate the effects of unanticipated and anticipated tax reforms. First, an unanticipated tax reform produces an expansion of GDP, labor, and investment, while an anticipated tax reform has opposite effects before the implementation of the labor tax cut. Quantitatively, if the traded sector is more capital intensive, GDP increases by 1.6 percentage points or declines by 2.8 percentage points after three years, depending on whether the tax cut is unanticipated or anticipated. Second, we find that GDP change masks a wide dispersion in sectoral output responses. Importantly, in all scenarios, a tax reform substantially raises the relative size of the non-traded sector while traded output always drops. Allowing for the markup to depend on the number of competitors, we find that a significant share of GDP change can be attributed to the competition channel while the dispersion of sectoral output responses is amplified. Finally, the workers only benefit from the labor tax cut if the tax change is unanticipated and the traded sector is more capital intensive.
    Keywords: Non Traded Goods; Investment; Tax Reform; Anticipation effects.
    JEL: F41 E62 E22 F32
    Date: 2012
  8. By: Fernando Díaz (Facultad de Economía y Empresa, Universidad Diego Portales); Gabriel Ramírez (Coles College of Business, Kennesaw State University)
    Date: 2011–08

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