nep-acc New Economics Papers
on Accounting and Auditing
Issue of 2014‒04‒18
ten papers chosen by
Alexander Harin
Modern University for the Humanities

  1. Do financial advisors provide tangible benefits for investors? Evidence from tax-motivated mutual fund flows By Cici, Gjergji; Kempf, Alexander; Sorhage, Christoph
  2. Where Has the Currency Gone? And Why? The Underground Economy and Personal Income Tax Evasion in the U.S., 1970-2008 By Cebula, Richard
  3. Dividend taxes and income shifting By Alstadsæter, Annette; Jacob, Martin
  4. Relationship Between Interest Rate and Corporate Bond Yield By Magomet Yandiev
  5. Optimal Environmental Tax-Subsidy Regime in the Presence of Increasing Returns By Wenli Cheng; Dingsheng Zhang; CEMA
  6. Free-Riding in Tax Credits For Home Insulation in France: An Econometric Assessment Using Panel Data By Marie-Laure Nauleau
  7. Environmental Levies, Distortionary Taxation and Increasing Returns By Wenli Cheng; Dingsheng Zhang; CEMA
  8. Financialisation, distribution, growth and crises – long-run tendencies By Eckhard Hein; Nina Dodig
  9. Beyond the R&D effects on innovation: the contribution of non-R&D activities to TFP growth in the EU By Jesus Lopez-Rodriguez; Diego Martinez
  10. Fiscal Deficit, Trade Deficit, and Financial Account Deficit: Triple Deficits Hypothesis with the U.S. Experience By Tuck Cheong TANG

  1. By: Cici, Gjergji; Kempf, Alexander; Sorhage, Christoph
    Abstract: Whether financial advisors provide useful services for clients that seek to invest in mutual funds remains an open question. We are the first to show that financial advisors generate tangible benefits for their clients in the form of useful tax advice. Specifically, financial advisors help clients reduce their tax liabilities by avoiding taxable fund distributions, which can potentially improve their after-tax returns. The benefits from financial advice are the largest in situations that matter most for investors, especially when investors face large and hard-to-predict tax liabilities. Evidence from December distributions suggests that financial advisors also help clients with tax-loss selling. --
    Keywords: Mutual funds,Taxable fund distributions,Financial advisors,After-tax returns
    JEL: D14 G11 G24 H24
    Date: 2014
  2. By: Cebula, Richard
    Abstract: Unaccounted for currency in the U.S. is argued to reflect the presence of widespread income tax evasion. This empirical study seeks to identify determinants of the underground economy in the U.S. in the form of federal personal income tax evasion over the period 1970-2008. In this study, we use the most recent data available on personal income tax evasion, data that are derived from the General Currency Ratio Model and measured in the form of the ratio of unreported AGI (adjusted gross income) to reported AGI. Other studies of federal income tax evasion for the U.S. are dated and do not use data this current. It is found that personal income tax evasion was an increasing function of the maximum marginal federal personal income tax rate, the percentage of federal personal income tax returns characterized by itemized deductions, and unpopular military engagements, in this case, the War in Iraq, and a decreasing function of the Tax Reform Act of 1986 (during its first two years of being implemented), the ratio of the tax free interest rate yield on high grade municipals to the interest rate yield on ten year Treasury notes (as a measure of the incentive effect of a better return to tax avoidance, which is legal), and higher audit rates of filed federal income tax returns (as a measure of risk from tax evasion) by IRS personnel.
    Keywords: underground economy; tax evasion; tax rates; audit rates
    JEL: H24 H26 H31 K42
    Date: 2014–04–12
  3. By: Alstadsæter, Annette; Jacob, Martin
    Abstract: This paper analyzes whether a dividend tax cut for owner-managers of closely held corporations encourages income shifting, income generation, or both. We use rich, micro data from Sweden for the period 2000 - 2011 comprising the entire Swedish population, as well as firmand individual-level data for all owner-managers in closely held corporations, partnerships, and self-employed. We find robust evidence of extensive income shifting across tax bases in response to the 2006 dividend tax cut. Relative to owners of unincorporated businesses, owner-managers of closely held corporations do not increase total income. Instead, they relabel earned income as dividend income. The income shifting effect is stronger for owner-managers with tax incentives and with easier access to income shifting through a high ownership share. --
    Keywords: income shifting,income generation,dividend taxes,closely held corporations,owner-managers
    JEL: H21 H25 H3
    Date: 2014
  4. By: Magomet Yandiev (Department of Economics, Lomonosov Moscow State University)
    Abstract: The author created a model that describes the relationship between the current bank interest rate (rate on loans extended to business entities) and future corporate bond yield (in the text this is formula # 17): Cbank = (k+Cbond)/(1-r). Where: CBank is interest rate on bank loans; CBond is bond yield; r is yield anticipated by shareholders; k is special ratio calculated from the formula # 22 which depends on authorized capital, EBIT, depreciation and income tax rate. Use of the model applied to Russia (calculations of early 2010) has shown that to the beginning of 2011, the financial situation in raw material industries will improve, while in other industries it will aggravate.
    Keywords: Bank interest rate, bond yield, yield anticipated by shareholders
    JEL: E44 F47 G12 G21
    Date: 2014–01
  5. By: Wenli Cheng; Dingsheng Zhang; CEMA
    Abstract: This paper develops a set of three models to study the optimal tax-subsidy regime in an economy characterised by two deviations from the perfect competition model – negative externality from pollution by the “dirty” industry, and increasing returns in the “clean” industry. Its main conclusions are: (1) the optimal single pollution tax is higher than the Pigouvian level; (2) a combination of pollution tax and quantity subsidy increases consumer welfare at a lower level of pollution tax; (3) the optimal pollution tax can be further lowered and consumer welfare further increased if the quantity subsidy is supplemented by a lump-sum subsidy.
    Keywords: optimal pollution tax, clean subsidy, increasing returns, monopolistic competition
    JEL: H23
    Date: 2014–04
  6. By: Marie-Laure Nauleau (CIRED)
    Abstract: This econometric study assesses the efficiency of the income tax credit system implemented in France in 2005 on households’ retrofitting investment decisions, focusing on insulation measures. A logit model with random individual effects is estimated using an unbalanced panel of 23,879 households surveyed over the period 2002-2011. An estimation in difference is performed to identify the impact of the policy. The tax credit had no significant effect during the first two years, suggesting a latency period related to inertia in households’ investment decisions, possibly due to the complexity of the tax credit scheme. The tax credit had an increasing, significant positive effect from 2007 to 2010, before slightly decreasing in 2011. This is in line with changes in the tax credit rates, suggesting a correlation with the level of subsidy. Defined as the situation in which the subsidized household would have invested even in the absence of the subsidy, free-riding progressively decreased over the period and was lower for insulation of opaque surfaces (roofs, walls, etc.) than for insulation of windows. The estimated average proportion of free-riders varies between 40% and 85% after 2006. Finally, we assess the potential bias caused by time-varying unobservable variables and conclude that our estimates of the impacts of the policy are conservative.
    Keywords: Energy Conservation, Residential Sector, Thermal Insulation, Tax Credit, Free-Riding, Difference Estimation, Panel Data, France
    JEL: Q48 R22 D12
    Date: 2014–03
  7. By: Wenli Cheng; Dingsheng Zhang; CEMA
    Abstract: In this note, we introduce increasing returns to Bovenberg and Mooij’s (1994) model as generalised in Fullerton (1997) and use an example to show that (1) even with a distortionary labor tax, the optimal environmental levy is greater than the Pigouvian rate; (2) the difference between tax on the “dirty” good and the “clean” good is also greater than the Pigouvian tax; (3) under certain circumstances, the government can optimally use the environmental levy to both meet its revenue requirement and subsidize the “clean” goods with increasing returns.
    Keywords: environmental levies, distortionary taxation, increasing returns
    JEL: H23
    Date: 2014–04
  8. By: Eckhard Hein (Berlin School of Economics and Law, and Institute for International Political Economy Berlin (IPE)); Nina Dodig (Berlin School of Economics and Law, and Institute for International Political Economy Berlin (IPE))
    Abstract: In this paper we review the empirical and theoretical literature on the effects of changes in the relationship between the financial sector and the non-financial sectors of the economy associated with ‘financialisation’ on distribution, growth, instability and crises. We take a macroeconomic perspective and examine four channels of transmission of financialisation to the macroeconomy: first, the effect on income distribution, second, the effects on investment in capital stock, third, the effects on household debt and consumption, and fourth, the effects on net exports and current account balances. For each of these channels we briefly review some empirical and econometric literature supporting the presumed channels, some theoretical and modelling literature examining the macroeconomic effects via these channels, and finally, we present small models generating the most important macroeconomic effects. We show that, against the background of redistribution of income at the expense of the labour income share and depressed investment in capital stock, each a major feature of financialisation, short- to medium-run dynamic ‘profits without investment’ regimes may emerge, which can be driven by flourishing consumption demand or by rising export surpluses, compensating for low or falling investment in capital stock. However, each type of these regimes, the ‘debt- led consumption boom’ type and the ‘export-led mercantilist’ type, contains internal contradictions, with respect to household debt in the first regime and with respect to foreign debt of the counterpart current account deficit countries in the second regime, which finally undermine the sustainability of these regimes and lead to financial and economic crises.
    Keywords: financialisation, distribution, growth, instability, financial and economic crises, Kaleckian models, current account imbalances.
    JEL: E12 E22 E24 E44 F41 G01
    Date: 2014–02–15
  9. By: Jesus Lopez-Rodriguez (European Commission, Joint Research Centre, Institute for Prospective); Diego Martinez (University Pablo Olavide)
    Abstract: A significant part of the innovation efforts carried out across very heterogeneous economies in Europe is under the form of Non-R&D innovation activities. But the traditional macro approach to the determinants of TFP does not handle this issue appropiately. This paper has proposed and estimated an augmented macro-theoretical model to the determinants of total factor productivity (TFP) by jointly considering the effects of R&D endowments and the impact of Non-R&D innovation activities on …firms´ levels of productivity. The estimation of the model for a sample of EU26 countries covering the period 2004-2008 shows that the distinction between R&D and Non-R&D endowments really matters for a number of different issues. First, the results show a sizable differential impact of these endowments on TFP growth, being the impact of R&D twice as big as the impact of Non-R&D. Second, absorptive capacity is only linked to R&D endowments. And third, the two types of endowments cannot strictly been seen as complements at least for the case of countries with high R&D intensities or high Non-R&D intensities.
    Keywords: TFP, R&D, Non-R&D expenditures, EU countries
    JEL: O0 O3 O4
    Date: 2014
  10. By: Tuck Cheong TANG
    Abstract: By extending the well-known twin deficits hypothesis, this study proposes a new testable hypothesis - “triple deficits hypothesis” from the general equilibrium perspective, which considers the third deficit of capital and financial account of balance of payment. An empirical l framework is conceptually developed from income-expenditure approach for cointegration. Positive finding is confirmed by the U.S. data that fiscal balance, current account balance, and capital and financial account balance are moving together in the long-run, or to say that they are cointegrated. It is also interesting this study finds that current account does Granger-cause fiscal balance, as well as the U.S. financial account position. This study has relevant policy implications, in particularly the country is with twin deficits phenomenon. This seminal work is still preliminary, and a few of suggestions have been outlined for further study.
    Keywords: Capital and financial account; Budget deficit; Current account balance; Twin deficits
    JEL: H62 F41
    Date: 2014–04

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