nep-acc New Economics Papers
on Accounting and Auditing
Issue of 2013‒05‒05
nine papers chosen by
Alexander Harin
Modern University for the Humanities

  1. Non-linear effects of taxation on growth By Nir Jaimovich; Sergio Rebelo
  2. The Effects of the Property Tax Break for Newly-Built Houses on Housing Investments in Tokyo By Norifumi Yukutake
  3. Is the Capital Cost Allowance System in Canada Unnecessarily Complex? By Odette Pinto; Rock Lefebvre
  4. The impact of the French Tobin tax By Leonardo Becchetti; Massimo Ferrari
  5. Value Added to Invested Capital (VAIC): New Financial Performance Metric and Valuation Tool By Rauf Ibragimov; Ignacio Velez Pareja; Jospeh Tham
  6. Taxation of human capital and wage inequality: a cross-country analysis By Fatih Guvenen; Burhanettin Kuruscu; Serdar Ozkan
  7. Micro-enterprises in Italy: a first analysis of economic and financial conditions By Stefania De Mitri; Antonio De Socio; Paolo Finaldi Russo; Valentina Nigro
  8. Looking ahead to Basel 3: Italian banks on the move By Francesco Cannata; Marco Bevilacqua; Simone Enrico Casellina; Luca Serafini; Gianluca Trevisan
  9. EVA Performance Measurement is Faulty: So You May Be Persuaded to Switch to a Robust OEVA-TEVA Alternative By Rauf Ibragimov, Ignacio Velez-Pareja, Joseph Tham; Ignacio Vélez-Pareja; Joseph Tham

  1. By: Nir Jaimovich; Sergio Rebelo
    Abstract: We study a model in which the effects of taxation on growth are highly non-linear. Marginal increases in tax rates have a small growth impact when tax rates are low or moderate. When tax rates are high, further tax hikes have a large, negative impact on growth performance. We argue that this non-linearity is consistent with the empirical evidence on the effect of taxation and other disincentives to investment and innovation on economic growth.
    Date: 2013
  2. By: Norifumi Yukutake
    Date: 2013–03
  3. By: Odette Pinto (Grant MacEwan University); Rock Lefebvre (Certified General Accountants Association of Canada)
    Abstract: The purpose of this paper is to investigate whether recurrent changes to Canada’s Capital Cost Allowance (CCA) system have significantly increased its complexity leading to incremental costs and inefficiencies for businesses. The study examines the extent to which the CCA system meets the principles of simplicity, equity and neutrality, assesses the efficiency of using the system as the vehicle for introducing economic incentives, and gauges how the CCA system affects the international competitiveness of Canadian businesses. Informed by views of accounting professionals and industry representatives, the results of the analysis provide evidence of the increased complexity of the CCA system. The system falls short on several key principles of a sound tax system and does not properly represent economic reality of the underlying assets. Moreover, the use of the system for economic incentives is generally not effective; however, representatives from certain industries emphasize the importance of such incentives for retaining international competitiveness.
    Keywords: Captial Cost Allowance system, tax simplification, international competitiveness, accelerated capital cost allowance, tax policy,
    JEL: H21 H25 H11 H71
    Date: 2013–04
  4. By: Leonardo Becchetti (University of Rome "Tor Vergata"); Massimo Ferrari (University of Rome "Tor Vergata"; Poste Italiane)
    Abstract: We analyse the impact of the introduction of the French Tobin tax on volumes, liquidity and volatility of affected stocks with parametric and non parametric tests on individual stocks, difference in difference tests and other robustness checks controlling for simultaneous month-of-the-year and size effects. Our findings document that the tax has a significant impact in terms of reduction in transaction volumes and intraday volatility. The reduction in volumes traded occurs in similar proportion in non taxed small cap stocks.
    Keywords: Financial Transaction Tax; intraday volatility; liquidity, transaction volumes
    JEL: G18 G12 G14
    Date: 2013–03
  5. By: Rauf Ibragimov; Ignacio Velez Pareja; Jospeh Tham
    Abstract: The paper introduces a new financial metric for managerial performance evaluation, Value Added to Invested Capital (VAIC), with the cost of unlevered equity as a hurdle rate to calculate the capital charge rather than the widely accepted WACC. VAIC preserves all positive features of the conventional residual operating income and EVA and has the distinct advantage of computational simplicity and straightforward interpretation. Associated valuation model is equivalent to the standard discounted cash flow approach; this equivalence is formally proved under certain assumptions regarding the risk of tax shields and confirms consistency of the new metric proposed. VAIC can serve as an aggregate financial indicator on the business performance dashboards, and might as well be considered a valid substitute for the established EVA, ReOI and EP metrics in evaluating managerial performance. Equivalence of the VAIC valuation model to the fundamental approach of valuing a business by cash flow discounting makes this metric not only a robust measure of financial performance but also a full-fledged investment valuation tool.
    Date: 2012–05–11
  6. By: Fatih Guvenen; Burhanettin Kuruscu; Serdar Ozkan
    Abstract: Wage inequality has been significantly higher in the United States than in continental European countries (CEU) since the 1970s. Moreover, this inequality gap has further widened during this period as the US has experienced a large increase in wage inequality, whereas the CEU has seen only modest changes. This paper studies the role of labor income tax policies for understanding these facts, focusing on male workers. We construct a life cycle model in which individuals decide each period whether to go to school, work, or stay non-employed. Individuals can accumulate skills either in school or while working. Wage inequality arises from differences across individuals in their ability to learn new skills as well as from idiosyncratic shocks. Progressive taxation compresses the (after-tax) wage structure, thereby distorting the incentives to accumulate human capital, in turn reducing the cross-sectional dispersion of (before-tax) wages. Consistent with the model, we empirically document that countries with more progressive labor income tax schedules have (i) significantly lower before-tax wage inequality at different points in time and (ii) experienced a smaller rise in wage inequality since the early 1980s. We then study the calibrated model and find that these policies can account for half of the difference between the US and the CEU in overall wage inequality and 84% of the difference in inequality at the upper end (log 90-50 differential). In a two-country comparison between the US and Germany, the combination of skill-biased technical change and changing progressivity of tax schedules explains all the difference between the evolution of inequality in these two countries since the early 1980s.
    Date: 2013
  7. By: Stefania De Mitri (Banca d'Italia); Antonio De Socio (Banca d'Italia); Paolo Finaldi Russo (Banca d'Italia); Valentina Nigro (Banca d'Italia)
    Abstract: Italy is the European country where firms with fewer than 10 employees account for the largest share of value added and employment. On the basis of data from the company balance sheets and the Central Credit Register during the period 2003-2010, this work contributes to the analysis of these companies describing their economic and financial conditions and their relations with banks based on a sample of about 500,000 companies, of which more than 400,000 are classified as micro-enterprises. On average, they have lower profitability and higher debt, largely bank debt, than the other size classes. The proportion of loans made by the partners and shareholders is significant, a feature that can mitigate some of the risks associated with their weaker financial conditions. Econometric estimates indicate that micro-enterprises must provide more guarantees and pay higher rates of interest. In all aspects investigated in our work, the heterogeneity of micro-enterprises is much higher than for the other size classes, which suggests broad scope for future research.
    Keywords: micro-enterprises, business companies, employment, banking relationships
    JEL: G21 G32 L25
    Date: 2013–04
  8. By: Francesco Cannata (Bank of Italy); Marco Bevilacqua (Bank of Italy); Simone Enrico Casellina (Bank of Italy); Luca Serafini (Bank of Italy); Gianluca Trevisan (Bank of Italy)
    Abstract: In December 2010 the Basel Committee on Banking Supervision published a set of new regulations for banks in response to the financial crisis. This paper aims at evaluating the possible effects of the new framework on banks’ available regulatory capital and risk-weighted assets and assessing their positioning with respect to future leverage and liquidity constraints. The evidence, based on the data collected from a representative sample of 13 Italian banking groups updated to 30 June 2012, show that capital and liquidity positions relatively to the Basel 3 targets have improved considerably over the last two years. Furthermore, compared to banks in other jurisdictions, Italian intermediaries are likely to be less affected by the reform, due to a business model more focused on credit intermediation. Importantly, the estimates cannot be interpreted as a forecast of capital and liquidity needs as they do not incorporate any assumption about future balance-sheet items or banks’ reactions to the changing regulatory and economic environment.
    Keywords: Basel 3, QIS, impact assessment, bank, capital, liquidity
    JEL: G21 G28
    Date: 2013–04
  9. By: Rauf Ibragimov, Ignacio Velez-Pareja, Joseph Tham; Ignacio Vélez-Pareja; Joseph Tham
    Abstract: We argue that the Economic Value Added (EVA) is biased by design and will generally yield distorted assessment of both the operating and overall performance. Fundamentally, the scale of measurement bias depends on the interest tax shield actually obtained in a measurement period and on a book to value ratio, however, there are also other potentially significant sources of distortions induced by the metric design. A robust alternative we propose is a concurrent evaluation of operating and total performance with the two nested metrics, Operating EVA (OEVA) and Total EVA (TEVA). OEVA applies the risk of assets (rather than WACC) to calculates the full capital charge and is unaffected by financing activities. TEVA incorporates financing side effects by explicitly adding interest tax shields to OEVA, but can be calculated as simply as a sum of interest expenses and net income less the full capital charge. The OEVA-TEVA approach is computationally simpler than EVA, the corresponding valuation model is consistent with the cash flow discounting and can be utilized as a self-sufficient instrument for investment project appraisal and business valuation.
    Date: 2013–02–15

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