nep-acc New Economics Papers
on Accounting and Auditing
Issue of 2014‒02‒08
seven papers chosen by
Alexander Harin
Modern University for the Humanities

  1. An anatomy of the Level 3 fair-value hierarchy discount By Emanuel Bagna; Giuseppe Di Martino; Davide Rossi
  2. The Fiscal Cost of Trade Liberalization By Julia Cagé; Lucie Gadenne
  3. Income Tax Buyouts and Income Tax Evasion By Laszlo Goerke
  4. Value added tax (VAT): the impact on the chain producer - processor - trader - consumer - state budget By Toma, Mircea
  5. Effects of Taxation on Software Piracy Across the European Union By Nicolas Dias Gomes; Pedro André Cerqueira; Luís Alçada Almeida
  6. Volatility Connectedness of Bank Stocks Across the Atlantic By Kamil Yilmaz
  7. Commitments or prohibition? The EU antitrust dilemma By Mario Mariniello

  1. By: Emanuel Bagna (Department of Economics and Management, University of Pavia); Giuseppe Di Martino (Accounting Department, Bocconi University); Davide Rossi (Accounting Department, Bocconi University)
    Abstract: We use an integrated approach to analyze the reasons behind the discount on the balance-sheet fair value of illiquid financial instruments held by European banks and classified into the Level 3 Fair Value hierarchy under IFRS 7. We believe that the potential sources of misalignment are 1) the lack of disclosure, 2) earnings management, and 3) the lack of liquidity. We show that the discount implicit in market values is linked to the lack of mandatory additional disclosure required by IFRS 7 and that this result support the strong enforcement activity made by national authorities. We also show that financial markets penalize banks that transfer assets from other fair-value hierarchy levels and that the penalty is due both to the instruments’ drop in liquidity and the opacity of the transfers.
    Keywords: Fair value hierarchy, Level 3, liquidity discount, financial instruments
    JEL: G12 G15 G18 G21 G28 G32 G38
    Date: 2014–01
  2. By: Julia Cagé (EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris, PSE - Paris-Jourdan Sciences Economiques - CNRS : UMR8545 - École des Hautes Études en Sciences Sociales (EHESS) - École des Ponts ParisTech (ENPC) - École normale supérieure [ENS] - Paris - Institut national de la recherche agronomique (INRA)); Lucie Gadenne (EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris, PSE - Paris-Jourdan Sciences Economiques - CNRS : UMR8545 - École des Hautes Études en Sciences Sociales (EHESS) - École des Ponts ParisTech (ENPC) - École normale supérieure [ENS] - Paris - Institut national de la recherche agronomique (INRA))
    Abstract: This paper puts the recent evolution of tax revenues in developing countries in historical perspective. Using a novel dataset on total and trade tax revenues we compare the fiscal cost of trade liberalization in developing countries and in today's rich countries at earlier stages of development. We find that trade liberalization episodes led to larger and longer-lived decreases in total tax revenues in developing countries since the 1970s than in rich countries in the 19th and early 20th centuries. The fall in total tax revenues lasts more than ten years in half the developing countries in our sample.
    Keywords: Taxation and development ; Trade liberalization ; State capacity ; Tax and tariff reform
    Date: 2014–02
  3. By: Laszlo Goerke (Institute for Labour Law and Industrial Relations in the EU, University of Trier)
    Abstract: A tax buyout is a contract between tax authorities and a tax payer which reduces the marginal income tax rate in exchange for a lump-sum payment. While previous contributions have focussed on labour supply, we consider the interaction with tax evasion and show that a buyout can increase expected tax revenues. This will be the case if (1) the audit probability is constant and the penalty for evasion is a function of undeclared income or (2) the penalty depends on the amount of taxes evaded, and authorities use information about income generated by the decision about a tax buyout offer when setting audit probabilities. Since individuals will only utilise a tax buyout if they are better off, higher tax revenues imply that such contracts can be Pareto-improving.
    Keywords: Asymmetric information, Revenues, Self-selection, Tax buyouts, Tax evasion
    JEL: D82 H21 H24 H26
    Date: 2014–01
  4. By: Toma, Mircea
    Abstract: Counteracting the crisis, theoretically but also practically cannot ignore the direct and consequential effects (collateral) of taxes and contributions due to the state budget and distribution of profits, on the chain: Financial Institutions ⇒ Suppliers of inputs ⇒ Agricultural producers ⇒ Wholesalers ⇒ Processing industry ⇒ En – detail traders ⇒ Consumer ⇒ State budget. Solutions require transparency, solidarity, equity, social justice in the distribution of efforts and usufruct (profit) on all chain participants to achieve useful goods and services useful for the human society. An orderly adjustment of tax and contribution system may lead to the adoption of those measures to stimulate domestic consumption, domestic output growth and rotation speed of capital, reducing the budget deficit, uncontrolled growth of prices, inflation and unemployment, in a word of imbalances in economic life. To assess the impact of VAT on the chain was started from two hypotheses : rethinking the VAT quota level on the chain and determine and regularization of the VAT, by entitling the right to the users of agricultural production to deduct VAT from the price paid to individual producers (associated )namely calculating VAT from 100 price paid.The results are concretized in: increasing revenues (about 2.4 billion / year), reducing the public institutions spending on goods and services bearing VAT by 20% (about 200 million Euro/ year), reduction of VAT refunds from the budget, reducing the gap between theoretical and potential VAT collected from 42% (49.5%) to 24%, by increasing the collection from 58% (50.5 %) to 76 %, concentration collecting VAT chargeable (76,22 %) from merchants and diminishing the amount of payment by the economic operators on channel.
    Keywords: VAT, chain, VAT quota, tax evasion, state budget
    JEL: Q14 Q18
    Date: 2013–11–21
  5. By: Nicolas Dias Gomes (Faculty opf Economics, University of Coimbra and INESC-Coimbra, Portugal); Pedro André Cerqueira (Faculty opf Economics, University of Coimbra and GEMF, Portugal); Luís Alçada Almeida (Faculty opf Economics, University of Coimbra and INESC-Coimbra, Portugal)
    Abstract: This paper explores the relation between levels of taxation among different types of households in the European Union and the levels of software piracy from 1996 to 2010. It extends previous works introducing a large panel data set for the European Union and it´s different regions. We estimate our model using the fixed effect, comparing results from the Euro Area and the Countries that joined EU in 2004 and 2007. Results show that levels of taxation increase the levels of software piracy losses; moreover these results depend on marital status and number of children. The weight of taxation on GDP, namely the taxes on consumption, have a positive effect on piracy losses while the impact of inflation is negative and marginal. Additional to this we also found that the relative importance of these taxes in relation to total taxation can affect this phenomenon. An increase in the weight of capital taxation would decrease software piracy while this effect was opposite when considering the relative importance of consumption taxes.
    Keywords: Panel data, personal taxation, software piracy.
    JEL: C23 H20 O52
    Date: 2014–01
  6. By: Kamil Yilmaz (Koc University)
    Abstract: This paper presents an analysis of the dynamic measures of volatility connectedness of major bank stocks in the US and the EU member countries. The results show that in the early stages of the US financial crisis in 2007 and 2008, the direction of the volatility connectedness was from the US banks towards the EU banks. However, once the financial crisis became global in the last quarter of 2008, volatility connectedness became bi-directional. The surge in volatility connectedness from the EU banks to the US banks in June 2011 was unprecedented, reflecting the scale of deterioration in the state of the EU banks. Finally, the within-connectedness of the US banks fluctuated throughout our sample period, while the within-connectedness of the EU banks increased steadily since 2007, a reflection of the fact that the European debt and banking crisis has not ended yet.
    Keywords: Risk measurement, systemic risk, connectedness, systemically important financial institutions, vector autoregression, variance decomposition
    JEL: C3 G2
    Date: 2014–02
  7. By: Mario Mariniello
    Abstract: The issue: Excluding cartels, most investigations into suspected infringements of European Union competition law are resolved with â??commitment decisionsâ??. The European Commission drops the case in exchange for a commitment from the company under investigation to implement measures to stop the presumed anti-competitive behaviour. Commitment decisions are considered speedier than formal sanctions (prohibition decisions) in restoring normal competitive market conditions. They have a cost, however: commitments are voluntary and are unlikely to be subject to judicial review. This reduces the European Commissionâ??s incentive to build a robust case. Because commitment decisions do not establish any legal precedent, they provide for little guidance on the interpretation of the law. Policy challenge: The European Commission relies increasingly on commitment decisions. More transparency on the substance of allegations, and the establishment of a higher number of legal precedents, are however necessary. This applies in particular to cases that tackle antitrust issues in new areas, such as markets for digital goods, in which companies might find it difficult to assess if a certain behaviour constitutes a violation of competition rules. To ensure greater transparency and mitigate some of the drawbacks of commitment decisions, while retaining their main benefits, the full detail of the objections addressed by the European Commission to defendants should be published.
    Date: 2014–01

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