nep-acc New Economics Papers
on Accounting and Auditing
Issue of 2012‒07‒23
ten papers chosen by
Alexander Harin
Modern University for the Humanities

  1. Public Sector Accounting - An Interdisciplinary Field Involving Accounting, Economics, and Jurisprudence By Ryosuke Tao
  2. Financial Constraints in Intangible Investments: Evidence from Japanese firms By MORIKAWA Masayuki
  3. With which countries do tax havens share information? By Katarzyna Bilicka and Clemens Fuest
  4. Taxing Hotel Room Sales by Online Travel Companies: What Should Be the Appropriate Tax Base? By James Mak
  5. From Regressive Pollution Taxes to Progressive Environmental Tax Reforms. By Mireille Chiroleu-Assouline; Mouez Fodha
  6. Business Taxation and Wages: Evidence from Individual Panel Data By Thomas K. Bauer; Tanja Kasten; Lars-H. Siemers
  7. Heterogeneity of taxation in EA Member countries and some implications for EA fiscal governance By Bernardi, L.
  8. Empirical Analysis of Corporate Tax and Foreign Direct Investment By Tomonori Sato
  9. An Experimental Study of Taxpayer Compliance Behavior Under Alternative Reporting Regimes By Bombyk, Matthew
  10. Italy's ACE tax and its effect on a firm's leverage By Panteghini, Paolo; Parisi, Maria Laura; Pighetti, Francesca

  1. By: Ryosuke Tao (Research Fellow, Institute of Administrative Management)
    Abstract: Public sector accounting has recently been improved. Currently, there are requirements to disclose stock information in addition to the flow information presented in budget statements or accounts statements. Public sectors have prepared and disclosed their financial statements (including balance sheets and income statements) based on business accounting approaches. Moreover, as a matter of policy, the government tends to prepare and disclose cost information along with the financial statements for the individual ministries and governmental agencies. The objectives of clarifying the fiscal conditions in a state through the preparation and disclosure of financial statements are to fulfill the statefs accountability to its citizenry and market participants and to optimize and enhance the efficiency of its fiscal activities. Most importantly, the improved information should contribute to democratic decisions on public finance. A perspective different from the business accounting is that public sector accounting places more emphasis on inter-generational fairness. With respect to the inter-generational benefits and burdens, however, various factors must be considered, and the differences between assets and liabilities in the balance sheet may not be the indicators for that purpose. Public sector accounting is considered to have been developed based on the business accounting approach. As such, the objective of the accounting is to retrospectively review how assets and liabilities have changed as a result of past public finance operations. Yet, in considering compelling public finance conditions, there is a need to discuss and consider expected perspectives, in order to clarify what resources will remain in the future by incorporating the aspect of future cash flows (this paper views this as a mixture of accounting thought and economic thought). It is important to recognize that both perspectives are commingled. If the forecast perspective is highlighted, the assets in the balance sheet should include taxation rights that give rise to future tax revenue. Another useful practice, from the perspective of information disclosure, is to prepare an individual balance sheet, in addition to a comprehensive financial statement, for each significant political agenda (e.g., public pension obligations). Public sector accounting has been developed without implementing a necessary legal basis. The effects of this reform may be a matter of not much interest without infringing any democratic control of public finance under cash basis accounting. The focus for public finance, however, has certainly been transferring from flow to stock and from the aspect of political decision to the aspect of administration. The role of public sector accounting should be clarified in conjunction with the various systems.
    Date: 2012–06
  2. By: MORIKAWA Masayuki
    Abstract: This paper uses Japanese firm-level data to analyze empirically the financial constraints in intangible investments. We estimate investment functions in which cash flow is used as a key explanatory variable. We then observe differences in the sensitivity of investments to cash flow by the type of assets, industry, firm size, and firm age. According to the estimation results, investments in intangible assets are more sensitive to internal capital compared with investments in tangible assets, suggesting the existence of market failure in the financial markets. This market failure is more serious for small- and medium-sized enterprises (SMEs) and young firms. However, policies to promote investments are concentrated on tangible assets, with the exception of research and development (R&D) investment. This paper suggests that investment tax credits and financial support for SMEs and young firms should focus more on intangible investments.
    Date: 2012–07
  3. By: Katarzyna Bilicka and Clemens Fuest
    Abstract: In recent years tax havens and offshore financial centres have come under increasing political pressure to cooperate with other countries in matters of taxation and efforts to crowd back tax evasion and avoidance. As a result many tax havens have signed tax information exchange agreements (TIEAs). In order to comply with OECD standards tax havens are obliged to sign at least 12 TIEAs with other countries. This paper investigates how tax havens have chosen their partner countries. We ask whether they have signed TIEAs with countries to which they have strong economic links or whether they have systematically avoided doing this, so that information exchange remains ineffective. We analyse 555 TIEAs signed by tax havens in the years 2008-2011 and find that on average tax havens have signed more TIEAs with countries to which they have stronger economic links. Our analysis thus suggests that tax havens do not systematically undermine tax information exchange by signing TIEAs with irrelevant countries. However, this does not mean that they exchange information with all important partner countries.
    Date: 2012–06–15
  4. By: James Mak (UHERO, University of Hawaii at Manoa)
    Abstract: This essay examines the current dispute between state and local governments in the U.S. and online travel companies (OTCs) over the appropriate hotel occupancy tax base for online hotel bookings. It addresses the question of what should be the appropriate tax base in designing hotel occupancy tax statutes. It argues that the appropriate tax base should be the full rental prices of the hotel rooms paid by consumers inclusive of online travel company markups and service fees and not the discounted net rates paid by the OTCs to their hotel suppliers.
    Keywords: Hotel Occupancy Tax, Online Travel Companies, Merchant Model
    JEL: Q20 Q25
    Date: 2012–07
  5. By: Mireille Chiroleu-Assouline (Centre d'Economie de la Sorbonne - Paris School of Economics); Mouez Fodha (LEO - Université d'Orléans)
    Abstract: European countries have increased their use of environmental tax instruments by designing new tax bases. But, many countries have to face the opposition of the public opinion, for fear of the distributive consequences of these environmental tax reforms. This paper sheds light on the distributive consequences of environmental tax policies when households are heterogeneous. The objective is to assess whether an environmental tax reform could be Pareto improving, when the revenue of the pollution tax is recycled by a change in the labor tax properties. We show that, whatever the degree of regressivity of the environmental tax alone, it is possible to design a recycling mechanism that renders the tax reform Pareto improving, by simultaneously decreasing the average rate of the wage tax annd increasing its progressivity.
    Keywords: Environmental tax reform, heterogeneity, welfare analysis, tax progressivity.
    JEL: D60 D62 E62 H23
    Date: 2012–07
  6. By: Thomas K. Bauer (University of Bochum/ RWI Essen); Tanja Kasten (RWI Essen); Lars-H. Siemers (University of Siegen)
    Abstract: Empirical evidence on the degree of business-tax shifting to employees via the wage level is highly controversial and rare. It remains open to which extent the tax burden is shifted, whether there are differences for tax increases and decreases, or whether there exists some treatment heterogeneity, that drive the respective results. Using a large administrative panel data set, we exploit the regional variation of the German business income taxation to address these issues. Our results suggest an elasticity of wages with respect to business taxes that ranges between 0.28 to 0.46, once we control for invariant unobserved regional and individual characteristics. Workers with low bargaining power, e.g., low-skilled, are affected most from business tax shifting, indicating that business-tax incidence involves distributional effects. Finally, we find evidence for an asymmetric tax incidence.
    Keywords: tax incidence prot taxation wages asymmetric eects
    JEL: H22 H25 J31 J38
    Date: 2012
  7. By: Bernardi, L.
    Abstract: Notwithstanding the repeated efforts of the European Authorities to harmonize and coordinate countries’ taxation, and in spite of the effects of international tax competition, in 2009 EA taxation was still far from being homogeneous among Member Countries. Given this situation, the purpose of the paper is threefold. First of all, it is designed to provide a detailed overview of the existing differences, in terms of taxation, among EA Members. Secondly, it aims at examining whether these disparities could interfere with EA fiscal governance, the rules of which largely consist in single figures applicable to all the concerned countries. Finally, the analysis wants to ascertain whether the present EU Commission’s suggestions for fiscal consolidation and for tax reforms may differently affect specific countries, given the aforementioned differences in their tax systems. The conclusions include the traditional belief that greater harmonization and coordination of Europe’s tax systems could well improve fiscal governance within the EA.
    Keywords: Taxation; Fiscal rules; Fiscal consolidation; Budget balance; EA countries
    JEL: H20 H30 H80
    Date: 2012–07–12
  8. By: Tomonori Sato (Former Economist, Policy Research Institute, Ministry of Finance)
    Abstract: This paper provides the insight into the effect of corporate income tax on foreign direct investment. The enhanced liquidity of labor and capital through globalization has accelerated the efficient and global utilization of human resources and capital. Considering this situation, many countries are acutely aware of the importance of attracting foreign direct investment in order to vitalize and promote economic growth. Many countries, therefore, have been providing and developing attractive environments for investments, and have lowered their corporate tax rates one after another. However, there are many elements which affect foreign direct investment and the effect of corporate tax on foreign direct investment is not necessarily apparent. We therefore empirically analyze foreign direct investment based on a panel of bilateral foreign direct investment flows among OECD 30 countries over 1985 – 2007. In this paper, we further address the dynamic panel data analysis (System GMM) through the expansion of the static panel data analysis in the previous research. This is why we recognize that the current scale of foreign direct investment may be influenced by the investment level of the previous year. We confirmed the expected result in the empirical analyses, namely, that the current scale of foreign direct investment is influenced by the investment level of the previous period. These studies also implied that the impact of corporate tax on foreign investment is significantly negative.
    Date: 2012–06
  9. By: Bombyk, Matthew
    Abstract: Underreporting of income is a costly problem for the government and for those people who do pay their taxes, due to the necessity of higher tax burdens to sustain a given amount of revenue. An extensive research report published by the IRS this year estimates that in the United States in 2006 the “tax gap” between paid taxes and legally owed taxes was $450 billion, which means 16.9 percent of total tax liabilities were evaded that year (Black et al., 2012). The IRS recovered $65 billion from late payments and audits, but that still left 14.5 percent noncompliance. Breaking the tax gap down into finer categories, the IRS finds that the vast majority (84 percent) comes from underreporting of income, most of that (62.5 percent) comes from individual income taxes, and most of that (52 percent) is small business proprietor’s income. This totals to 27 percent of noncompliance due to underreporting of individual proprietor income. It is estimated that 57 percent of business income is not reported (Black et al., 2012). Wages make up a small fraction of underreporting, mostly due to the fact that firms must report employee income directly to the IRS, and withholding is common, so a relatively disinterested third party makes the decision of how much income is reported (Slemrod, 2008). Slemrod emphasizes the importance of enforcement in compliance behavior, citing the fact that income subject to withholding and substantial information reporting (wages) has a 1 percent noncompliance rate, compared to 56 percent noncompliance for income with little or no information reporting requirements. Given the difficulty of identifying cheaters and the cost of increasing the rate of auditing, a better understanding of the determinants of noncompliance is needed 1 to reduce the magnitude of tax cheating. To address a part of the tax evasion quandary, Kalambokidis et al. (2012) conducted a laboratory experiment1 which was designed to examine the feasibility of using the choice between a high-burden,2 low-transparency and a low-burden, high-transparency tax regime, as a mechanism to separate out those who have higher and lower propensities to cheat when reporting their income. The results are the subject of this paper.
    Keywords: Financial Economics, Institutional and Behavioral Economics, Public Economics,
    Date: 2012–07
  10. By: Panteghini, Paolo; Parisi, Maria Laura; Pighetti, Francesca
    Abstract: This article describes the new ACE-type system implemented in Italy since 2012. The authors first show that this system reduces but does not eliminate the financial distortion due to interest deductibility. Using a dataset of Italian companies, the authors analyze the impact of this relief on Italian firm capital structure. Despite the permanence of a tax advantage and its gradual implementation, the ACE relief is estimated to reduce significantly leverage. By decreasing default risk it is also expected to reduce systemic risk. --
    Keywords: ACE,business taxation,leverage
    JEL: H25 H32
    Date: 2012

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