nep-acc New Economics Papers
on Accounting and Auditing
Issue of 2015‒02‒28
eight papers chosen by
Alexander Harin
Modern University for the Humanities

  1. Mark-to-market accounting and systemic risk: evidence from the insurance industry By Andrew Ellul ; Chotibhak Jotikasthira ; Christian T. Lundblad ; Yihui Wang
  2. Tax Rates and Tax Evasion: Evidence from Missing Imports in Tanzania By Epaphra, Manamba
  3. Progressivity and decomposition of VAT in the Mexican border, 2014 By Luis Huesca ; Arturo Robles Valencia ; Abdelkrim Araar
  4. Which type of government revenue leads government expenditure? By Abdi, Zeinab ; Masih, Mansur
  5. Shifting Taxes from Labour to Property: A Simulation under Labour Market Equilibrium By Moscarola, Flavia Coda ; Colombino, Ugo ; Figari, Francesco ; Locatelli, Marilena
  6. Short-term impacts of formalization assistance and a bank information session on business registration and access to finance in Malawi By Campos, Francisco ; Goldstein, Markus ; McKenzie, David
  7. Learning to open up: Capital account liberalizations in the post-Bretton Woods era By Bicaba, Zorobabel T. ; Coricelli, Fabrizio
  8. Income inequality and Germany’s current account surplus By Patrick Grüning ; Thomas Theobald ; Till van Treeck

  1. By: Andrew Ellul ; Chotibhak Jotikasthira ; Christian T. Lundblad ; Yihui Wang
    Abstract: One of the most contentious issues raised during the recent crisis has been the potentially exacerbating role played by mark-to-market accounting. Many have proposed the use of historical cost accounting, promoting its ability to avoid the amplification of systemic risk. We caution against focusing on the accounting rule in isolation, and instead emphasize the interaction between accounting and the regulatory framework. First, historical cost accounting, through incentives that arise via interactions with complex capital adequacy regulation, does generate market distortions of its own. Second, while mark-to-market accounting may indeed generate fire sales during a crisis, forward-looking institutions that rationally internalize the probability of fire sales are incentivized to adopt a more prudent investment strategy during normal times which leads to a safer portfolio entering the crisis. Using detailed, position- and transaction-level data from the U.S. insurance industry, we show that (a) market prices do serve as ‘early warning signals’, (b) insurers that employed historical cost accounting engaged in greater degrees of regulatory arbitrage before the crisis and limited loss recognition during the crisis, and (c) insurers facing mark-to-market accounting tend to be more prudent in their portfolio allocations. Our identification relies on the sharp difference in statutory accounting rules between life and P&C companies as well as the heterogeneity in implementation of these rules within each insurance type across U.S. states. Rather than promoting a shift away from market-based information, our results indicate that regulatory simplicity may be preferred to the complexity of risk-weighted capital ratios that gives rise, through interactions with accounting rules, to distorted risk-taking incentives and potential build-up of systemic risk.
    Keywords: Regulation; Systemic risk; Mark to market; Historical cost accounting; Fire sales; Capital ratios; Insurance companies
    JEL: G11 G12 G14 G18 G22
    Date: 2013–10–22
  2. By: Epaphra, Manamba
    Abstract: Tax evasion is the basic characteristic of many developing countries. De facto tax collections are consequently far below revenue implied by published or de jure tax rates. This paper empirically examines tax rates (tariff plus VAT rates) as the determinants of customs revenue evasion across products, based on a systematic analysis of discrepancies in trade declarations for trading partners, United Republic of Tanzania, Republic of South Africa and China. The results indicate that trade gap is highly correlated with tax rates, that is, much more value is lost for products with higher tax rates. The results also show that the trade gap is correlated with tax rates on closely related products from Republic of South Africa, implying that evasion takes place through misclassification of imports from higher-taxed categories to lower-taxed ones. However, there is no evidence of misclassification of imports from China. The wide divergences between the effective and statutory tax rates in Tanzanian tax system indicate that there is a scope for raising tax revenue without increasing tax rates by reinforcing tax and customs administrations and reducing tax evasion.
    Keywords: tax evasion, imports, tariff rate, and import VAT
    JEL: H20 H26
    Date: 2015
  3. By: Luis Huesca (Centro de Investigación en Alimentación y Desarrollo ); Arturo Robles Valencia (Centro de Investigación en Alimentación y Desarrollo ); Abdelkrim Araar (Université Laval, Québec, Canada )
    Abstract: We measure the general redistributive effect in the Mexican fiscal system and its northern border with two decomposition approaches. The novelty of this application lies in the use of non-parametric techniques and the fact that we did not assume any functional relationship among the variables in analysis. Our paper contributes with an assessment of the new 2014 fiscal reform according to the Value Added Tax (VAT) and its effects on the households. A tax-benefit system with relative progressivity but high HI effect is found as well as an increase on tax revenues up to 4 percent of GDP from VAT in the border as well. Our analytical method to decompose the total progressivity measured by the contributions of different tax sources from VAT, allow us to conclude which sort of products should or should not be taxed with the general rate.
    Keywords: Value added tax; redistribution; vertical equity; horizontal inequity; non-parametric analysis
    JEL: D63 H22 H23 I32 C14
    Date: 2015–01–01
  4. By: Abdi, Zeinab ; Masih, Mansur
    Abstract: This Malaysia is a developing Islamic state that faced government budget deficit since 1998. It is undeniable that a budget deficit or inability to cover government spending is not positively seen by external parties. The optimum level of government budget is the state where government spending is totally offset by government revenue and that can be achieved through an increase in tax revenue or decrease in spending. The paper aims to discover the existence of a theoretical relationship between government spending and the different types of government revenues namely direct and indirect taxes and non-tax revenues. Furthermore, the paper tries to find out which of the different government revenues leads government spending. As well as to discover each revenue structure relationship with government spending using sample data from Malaysia for the period of 1970-2013 and time series techniques. The paper found out that although majority of government revenue is from direct tax revenue, the government spending only varies due to a change in indirect government tax revenue and non-tax revenue. In addition, it discovered that there is a long run relationship between the variables and that direct tax and government spending are endogenous (follower) variables, while non-tax revenue and indirect tax are exogenous (leader) variables. The paper also discussed the necessity of tax reform in Malaysia, since inefficiency in direct tax revenue leads to a dependence on non-tax revenue and regressive indirect taxes.
    Keywords: Government revenue, government expenditure, time series techniques
    JEL: C22 C58 E6
    Date: 2014–08–11
  5. By: Moscarola, Flavia Coda (University of Turin ); Colombino, Ugo (University of Turin ); Figari, Francesco (University of Insubria ); Locatelli, Marilena (University of Turin )
    Abstract: A tax shifting from labour income to housing taxation is generally advocated on efficiency grounds. However, most of the empirical literature focuses on the distributional implications of property tax reforms without paying much attention to potential consequences on the labour market. The aim of this paper is to fill this gap by investigating the effects of a tax shifting from labour income to property, guaranteeing revenue neutrality, and to assess the consequences of labour market equilibrium, both on occupation rates and income distribution. We propose to consider a hypothetical tax reform in Italy which uses the revenue of the tax on house property (actually implemented in 2012) for increasing tax credits on low incomes and making them refundable. In order to evaluate the reform we have developed a structural model of household labour supply which takes into account the labour market equilibrium conditions. Overall, the simulated policy provides a more effective income support and better incentives to work for low wage households and determines an improvement in inequality indexes.
    Keywords: labour supply, tax shifting, personal tax on labour income, property tax, labour market equilibrium, microsimulation
    JEL: C35 C53 D31 J22 H31
    Date: 2015–02
  6. By: Campos, Francisco ; Goldstein, Markus ; McKenzie, David
    Abstract: Despite regulatory efforts designed to make it easier for firms to formalize, informality remains extremely high among firms in Sub-Saharan Africa. In most of the region, business registration in a national registry is separate from tax registration. This paper provides initial results from an experiment in Malawi that randomly allocated firms into a control group and three treatment groups: a) a group offered assistance for costless business registration; b) a group offered assistance with costless business registration and (separate) tax registration; and c) a group offered assistance for costless business registration along with an information session at a bank that ended with the offer of business bank accounts. The study finds that all three treatments had extremely large impacts on business registration, with 75 percent of those offered assistance receiving a business registration certificate. The findings offer a cost-effective way of getting firms to formalize in this dimension. However, in common with other studies, information and assistance has a limited impact on tax registration. The paper measures the short-term impacts of formalization on financial access and usage. Business registration alone has no impact for either men or women on bank account usage, savings, or credit. However, the combination of formalization assistance and the bank information session results in significant impacts on having a business bank account, financial practices, savings, and use of complementary financial products.
    Keywords: Business in Development,Competitiveness and Competition Policy,Business Environment,E-Business,Access to Finance
    Date: 2015–01–01
  7. By: Bicaba, Zorobabel T. ; Coricelli, Fabrizio
    Abstract: The Great Recession has shattered the consensus on the benefits of capital account liberalization. Capital account controls have been introduced in several countries and have even been supported by the International Monetary Fund. In this paper we investigate whether capital account policies in the post-Bretton Woods era can be explained as a process driven by learning by policymakers, who update their beliefs on the basis of their own experience and of the policies adopted by other countries. We emphasize the impact of financial crises on the learning process. The learning model developed in the paper explains more than 90% of the variability of capital account policies. We find that over time beliefs about the growth effects have changed slowly and not smoothly from negative to positive. However, at the outset of the Great Recession beliefs on the positive growth dividends from capital account liberalization were still affected by a significant degree of uncertainty, which suggests that reversals in external liberalizations in the aftermath of the Great Recession are consistent with rational learning by policymakers. Finally, in evaluating the potential benefits and costs of capital controls in a given set of countries, contagion effects through changing beliefs of other countries should be taken into account.
    Keywords: beliefs; capital account liberalization; learning; strategic experimentation
    JEL: C79 D8 E61 F42 G15 G18
    Date: 2015–02
  8. By: Patrick Grüning ; Thomas Theobald ; Till van Treeck
    Abstract: Germany entered the euro with a current account deficit but over the entire past decade has run large and persistent current account surpluses. Besides joining the common currency, the increase of Germany’s current account since the late 1990s has been accompanied by strong shifts in the personal and, in particular, the functional income distribution. In this paper, we argue that income inequality should always be analyzed with respect to both the personal and the functional distribution of income. We present a dynamic stochastic general equilibrium (DSGE) model in which a current account surplus arises as an endogenous result of a decrease in the share of household income in national income. On the one hand, this result complements existing literature where current account deficits result from rising personal income inequality. On the other hand, we find that current account imbalances will be more pronounced when accompanied by changes in the financial system. Accordingly, if we link Germany’s accession to the European monetary union to lower exchange rate costs for German bank lending, the current account surplus becomes larger.
    Keywords: income inequality, functional income distribution, household debt, financial system, current account
    JEL: D31 E17 F32
    Date: 2015

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