nep-acc New Economics Papers
on Accounting and Auditing
Issue of 2015‒11‒07
eleven papers chosen by
Alexander Harin
Modern University for the Humanities

  1. Labour Market Regulation, Fiscal Consolidation, and the Success of Current Account Adjustments By Antonis Adam; Panos Hatzipanayotou; Thomas Moutos
  2. Macroeconomic Imbalances and the Eurozone Crisis: The Impact of Credit Expansion on Asset Prices By Gökçer Özgür; Emel Memiş
  3. A Positive Theory of Tax Reform By Ilzetzki, Ethan
  4. Factors Determining Callbacks to Job Applications by the Unemployed: An Audit Study By Farber, Henry S; Silverman, Dan; Wachter, Till von
  5. Quality costs and Corporate Taxation. Literature review. By Flamino Viola; Margarida Saraiva
  6. Economic integration and interdependence of tax policy By Holzmann, Carolin; von Schwerin, Axel
  7. Saving: Pool or Residual? By Gökçer Özgür
  8. Business in the United States: Who Owns it and How Much Tax Do They Pay? By Michael Cooper; John McClelland; James Pearce; Richard Prisinzano; Joseph Sullivan; Danny Yagan; Owen Zidar; Eric Zwick
  9. Does The Accrual Anomaly Exists In Stock Market? Evidence From Pakistan By Baloch, Muhammad Saad
  10. Corporate Shareholdings and the Liquidity of Malaysian Stocks: Investor Heterogeneity, Trading Account Types and the Underlying Channels By Lim, Kian-Ping; Thian, Tze-Chung; Hooy, Chee-Wooi
  11. Current account and REER misalignments in Central Eastern EU countries: an update using the macroeconomic balance approach By Comunale , Mariarosaria

  1. By: Antonis Adam; Panos Hatzipanayotou (Athens University of Economics and Business); Thomas Moutos (DIEES, AUEB)
    Abstract: In this paper we argue that the strictness of labour market regulations can interact with the mode of fiscal consolidation (tax- based versus spending-based fiscal adjustments) to affect whether current account adjustments are successful. Using data from 81 countries, we are able to identify 147 episodes of current account adjustments, of which 69 are classified as successful. On the basis of a discrete choice cross- sectional time- series model we find that the co-existence of tax-based fiscal consolidations and strict labour market regulations reduces significantly the probability of successful current account adjustments.
    Keywords: Current account adjustment, labour market regulations, fiscal consolidation
    JEL: E62 F32 F41
    Date: 2015–10–29
  2. By: Gökçer Özgür (Hacettepe University, Department of Economics); Emel Memiş (Ankara University, Department of Economics)
    Abstract: The economic crisis of the Eurozone emerged after the subprime mortgage crisis of the U.S. and since then fiscal profligacy of some member countries primarily Greece at the outset, were seen as the root of the crisis. However, alternative approaches pointed to the current account imbalances within the Eurozone; the flaws in the architecture of the Eurozone system. In this study, we aim to analyze these structural problems behind the macroeconomic imbalances and trace their consequences in terms of credit expansion and asset price speculation. More specifically we examine the impacts of credit expansion (the change in new loans relative to GDP) on asset prices using dynamic panel estimations for 11 countries in the Eurozone over the period 1990-2011. We provide the estimates for the pooled sample and for the subsample countries separately regrouped based on Hein (2013) as: i) the debt-led consumption (Greece, Ireland and Spain); ii) export-led mercantilist (Austria, Belgium, Finland, Germany and Netherlands) and iii) domestic demand-led countries (France, Italy and Portugal). We find that the credit expansion and asset prices are closely associated in the first and third group of countries whereas no significant correlation is observed in the second group. In addition we also provide evidence on the relationship between the growth of GDP and credit expansion supporting previous findings in the literature.
    Keywords: Credit expansion; Asset prices; Eurozone crisis; Macroeconomic imbalances
    JEL: E42 E65 F36 F34
    Date: 2015
  3. By: Ilzetzki, Ethan
    Abstract: The political impediments to reform and the forces allowing its success are studied in a model where the tax base and statutory rate are separate instruments of tax policy. The model predicts that big bang reforms—large changes in the tax code—may be easier to enact than marginal reforms. Preferences over the tax base face a tipping point where even the beneficiaries from tax exemptions support reform. At such a \reform moment", tax reform is Pareto improving. Politically feasible tax reform occurs when fiscal needs are large, but may nonetheless involve reductions in marginal tax rates. There is strategic complementary in lobbying for tax exemptions, resulting in multiple equilibria. Evidence from tax-base changes in a panel of OECD countries supports a number of the main predictions.
    JEL: D72 D78 H26
    Date: 2015–11
  4. By: Farber, Henry S (Princeton University); Silverman, Dan (Arizona State University); Wachter, Till von (University of California, Los Angeles)
    Abstract: We use an audit study approach to investigate how unemployment duration, age, and holding a low-level "interim" job affect the likelihood that experienced college- educated females applying for an administrative support job receive a callback from a potential employer. First, the results show no relationship between callback rates and the duration of unemployment. Second, workers age 50 and older are significantly less likely to receive a callback. Third, taking an interim job significantly reduces the likelihood of receiving a callback. Finally, employers who have higher callback rates respond less to observable differences across workers in determining whom to call back. We interpret these results in the context of a model of employer learning about applicant quality.
    Keywords: audit study, unemployment duration, interim job, age discrimination
    JEL: J64
    Date: 2015–10
  5. By: Flamino Viola (University of Évora, PhD Student and CEFAGE, Portugal); Margarida Saraiva (University of Évora and BRU-UNIDE/ISCTE-IUL)
    Abstract: The literature on Total Quality Management (TQM) has never questioned whether there is any relationship between quality and taxation. This paper demonstrates that quality and taxation are two interdependent social realities that can and should be used together in the explanation of phenomena of an economic nature, and that there is a connection and interdependence between quality and taxation at the economic and business level. The relationship between quality and taxation at the corporate level occurs as a result of firms feeling the need to carry out more efficient management of resources. This efficient resource management requires that firms should have more precise and accurate information about all their costs including those associated with meeting their tax obligations (compliance costs). Quality is not alien to these issues: TQM and quality costs are strategies that can be applied to all activities undertaken by firms including their own tax practice. The PAF model, by allowing the reduction of compliance costs, is considered a useful and essential tool for business taxation.
    Keywords: Cost of quality; Taxation; Total Quality Management; Quality.
    JEL: H32
    Date: 2015
  6. By: Holzmann, Carolin; von Schwerin, Axel
    Abstract: This paper provides empirical evidence for interdependence of jurisdictions' tax policies. We study tax policy interdependence between municipalities in the economically integrated European Metropolitan Area Frankfurt/Rhein-Main, that spreads across two German states, Hesse, and Rhineland-Palatinate. For empirical identification, we exploit two reforms in the Hessian local fiscal equalization scheme in the 1990s that induced quasi-experimental variation in Hessian metropolitan municipalities' business tax rates. In response to the Hessian metropolitan municipalities' tax rate increase, Rhineland-Palatine metropolitan municipalities increase their local business tax rates more moderately as compared to a matched control group of Rhineland-Palatine non-metropolitan municipalities. We argue that primarily tax competition considerations drive the results, as the average tax-rate differential between metropolitan municipalities in Rhineland-Palatinate and Hesse stays stable during the analysis period. We conclude that an arguably strong economic integration of municipalities seems a key determinant for the interdependence of their tax policies.
    Keywords: fiscal interdependence,tax mimicking,local business tax,tax competition,fiscal equalization schemes
    JEL: H20 H71 H77
    Date: 2015
  7. By: Gökçer Özgür (Hacettepe University, Department of Economics)
    Abstract: Austerity policies have defined the economic and political landscape of Europe since the break of the last economic crisis. These policies claim to promote long-term economic growth by promoting domestic savings so that savings can lead to investments and economic growth. Yet, saving-investment equality has always been a highly disputed topic in economics. Though various economists from different background accept this equality ex post, the causality ex ante is an area of dispute: the main issue, at least since Keynes published General Theory, whether investments lead to savings or ex ante savings are responsible for investment. This difference has serious macroeconomic policy outcomes; Feldstein-Horioka Puzzle (Feldstein and Horioka, 1980), Glut of Savings (Bernanke, 2005) and finally austerity programs have all built on the presumption that ex ante savings are responsible for investments and economic growth. However, heterodox economists, especially Post Keynesians, have gathered an immense literature with theoretical and empirical studies. The mainstream views depend on the notion that households, government, firms and foreign savings take place first and these are used to fund investments. In this understanding, households or firms decision to save at the micro level is assumed as responsible for national savings at the macro level. However, these studies, especially empirical ones, do not tell how national savings data is compiled and how micro saving decisions lead to national savings at the macro level. A close study of saving data reveals that national savings data is compiled at the macro level ex post as simple national income accounting dictates. And there is a big gap between savings at the micro level and national savings and this gap is estimated as a residual so that savings at the micro level and macro level can fit to each other. In this study we will analyze how savings data is compiled according to System of National Accounts (SNA), the international guideline for national income accounting since 1946, and U.S. Flow of Funds Accounts. Both sources reveal that an economic unit, a household, a government or a national economy is not constrained by savings; and each unit can always spend more (or less) than its income which in turn lead to an increase in liabilities (assets). (This methodology is not new for Post Keynesians, especially to those using stock-flow consistent approach.) According to SNA, micro level savings are only “balancing items” and the differences between savings at the micro level and national savings are again balanced with another item; i.e. consumption of fixed capital (CFC). The CFC, by definition, is estimated according to investment data and in many economies it is the largest component of national savings. As a result, many economists are using national savings data to argue savings are responsible for investment, yet the data they use is compiled ex post through national income accounting and investment is the biggest component there. This study will try to show that there is no ex ante savings data independent of investment and national income which means empirical studies that starts with ex ante savings is flawed from their start.
    Keywords: na
    Date: 2015
  8. By: Michael Cooper; John McClelland; James Pearce; Richard Prisinzano; Joseph Sullivan; Danny Yagan; Owen Zidar; Eric Zwick
    Abstract: “Pass-through” businesses like partnerships and S-corporations now generate over half of U.S. business income and account for much of the post-1980 rise in the top- 1% income share. We use administrative tax data from 2011 to identify pass-through business owners and estimate how much tax they pay. We present three findings. (1) Relative to traditional business income, pass-through business income is substantially more concentrated among high-earners. (2) Partnership ownership is opaque: 20% of the income goes to unclassifiable partners, and 15% of the income is earned in circularly owned partnerships. (3) The average federal income tax rate on U.S. pass- through business income is 19%|much lower than the average rate on traditional corporations. If pass-through activity had remained at 1980's low level, strong but straightforward assumptions imply that the 2011 average U.S. tax rate on total U.S. business income would have been 28% rather than 24%, and tax revenue would have been approximately $100 billion higher.
    JEL: D31 D33 E25 E62 H2 H22 H25 M2
    Date: 2015–10
  9. By: Baloch, Muhammad Saad
    Abstract: This study examined the existence of accrual anomaly exclusively in Karachi Stock Exchange by measuring accruals from cash flow approach and by using a sample of 100 non-financial firms registered at Karachi Stock Exchange (KSE) for the time period of 2002 to 2013. The objective of the study is to examine the accrual anomaly by measuring accruals from cash flow approach as measuring accruals from balance sheet approach may contain estimation errors which may lead to biased result i.e. existence of accrual anomaly. Robust Fixed Effect method is used to achieve the objective. Result revealed that accruals predict the future stock returns positively when accruals are measured through cash flow approach which is contradictory to the accrual anomaly. It proved that measuring accruals from balance sheet approach contain estimation errors which lead to biased results. The study concluded that accrual anomaly does not exist in KSE and selection of specific estimation method is reason for accrual anomaly.
    Keywords: Accrual Anomaly, Accruals, Accounting, Earning Management, KSE, Pakistan
    JEL: M41 M49
    Date: 2015–09–30
  10. By: Lim, Kian-Ping; Thian, Tze-Chung; Hooy, Chee-Wooi
    Abstract: This paper examines the relationship between shareholdings of various investor groups and stock liquidity for Malaysian public listed firms over the 2002-2009 sample period. Using the Amihud illiquidity ratio, we extend the literature by addressing the issues of investor heterogeneity, trading account types and the interactions of competing liquidity channels. The analysis reveals that only local institutions and local individual investors who trade through the direct accounts are significantly associated with the liquidity of domestic firms. In contrast, the significant liquidity effect for foreign investors operates through the nominee accounts. While institutional ownership exhibits a linear negative relationship, our findings on local individuals and foreign nominees differ greatly from previous studies in that their relationship with stock liquidity is non-monotonic. Apart from the widely researched information asymmetry and trading effects, we find that liquidity is also driven by the largely ignored information competition channel. An important insight from our findings is that the large shareholdings by any particular investor group is detrimental to stock liquidity as they exacerbate information asymmetry, reduce the degree of competition and lower the level of trading activity.
    Keywords: Investor groups; Stock liquidity; Information asymmetry; Information competition; Trading; Malaysia
    JEL: G12 G32
    Date: 2015–07–25
  11. By: Comunale , Mariarosaria (BOFIT)
    Abstract: Using the IMF CGER methodology, we make an assessment of the current account and price competitiveness of the Central Eastern European Countries (CEEC) that joined the EU between 2004 and 2014. We present results for the “Macroeconomic Balance (MB)” approach, which provides a measure of current account equilibrium based on its determinants together with mis-alignments in real effective exchange rates. We believe that a more refined analysis of the mis-alignments may useful for the Macroeconomic Imbalance Procedure (MIP). This is especially the case for these countries, which have gone through a transition phase and boom/bust periods since their independence. Because such a history may have influenced a country’s performance, any evaluation must take account of each country’s particular characteristics. We use a panel setup of 11 EU new member states (incl. Croatia) for the period 1994-2012 in static and dy-namic frameworks, also controlling for the presence of cross-sectional dependence and check-ing specifically for the role of exchange rate regimes, capital flows and global factors. <p> We find that the estimated coefficients of the determinants meet with expectations. Moreover, the foreign capital flows, the oil balance, and relative output growth seem to play a crucial role in explaining the current account balance. Some global factors such as shocks in oil prices or supply might have played a role in worsening the current account balances of the CEECs. Having a pegged exchange rate regime (or being part of the euro zone) affects the current account positively. The real effective exchange rates behave in accord with the current account gaps, which clearly display cyclical behaviour. The CAs and REERs come close to equilibria in 2012 in most of the countries andthe rebalancing is completed for some countries that were less misaligned in the past, such as Poland and Czech Republic, but also for Lithuania. When Foreign Direct Investment (FDI) is introduced as a determinant for these countries, the misalignments are larger in the boom periods (positive misalignments) whereas the negative misalignments are smaller in magnitude.
    Keywords: real effective exchange rate; Central Eastern European Countries; EU new member states; fundamental effective exchange rate; current account
    JEL: C23 F31 F32
    Date: 2015–10–14

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