nep-acc New Economics Papers
on Accounting and Auditing
Issue of 2016‒04‒23
nine papers chosen by
Alexander Harin
Modern University for the Humanities

  1. Profit distribution and loss coverage rules for central banks By Bunea, Daniela; Karakitsos, Polychronis; Merriman, Niall; Studener, Werner
  2. A Review of critical issues on tax design and tax administration in a global economy and developing countries. By Mattéo Godin; Jean Hindriks
  3. Wealth distribution and taxation in EU Members By Anna Iara
  4. Effectiveness of fiscal incentives for R&D: quasi-experimental evidence By Irem Guceri; Li Liu
  5. The theory and practice of supervision--Remarks at the SIFMA Internal Auditors Society Education Luncheon, Harvard Club, New York City By Stiroh, Kevin J.
  6. The Impact of Japanese Regulatory Changes on Accrual-Based and Real Earnings Management By Masahiro Enomoto; Tomoyasu Yamaguchi
  7. Corporate tax minimization and stock price reactions By Blaufus, Kay; Möhlmann, Axel; Schwäbe, Alexander
  8. Estimating taxable income responses using Danish tax reforms By Henrik Jacobsen Kleven; Esben Anton Schultz
  9. A new approach to financial VAT By Julio López-Laborda; Guillermo Peña

  1. By: Bunea, Daniela; Karakitsos, Polychronis; Merriman, Niall; Studener, Werner
    Abstract: The issue of central bank profit distribution is both complex and often politically controversial. Based on the replies of 57 central banks worldwide to an ECB questionnaire, this paper analyses how profit distribution rules can affect the amounts distributed and the financial strength of central banks. The paper also investigates the link between profit distribution, accounting rules and financial strength. Research shows that central banks apply divergent rules as regards profit distribution and loss coverage. While they are not a measure of central bank performance, in the long run profits strengthen the credibility of central banks and contribute to their financial independence, whereas profit distribution rules that do not allow central banks to set up adequate reserves might have the opposite effect. The interaction of profit distribution rules and accounting rules also plays an important role in central banks achieving financial strength. Accounting frameworks can materially influence central banks’ net results via their treatment of unrealised results and the creation of general risk provisions. Distribution policies can offset the volatility of distributed profits by recording changes in value in a separate account before calculating the amount of distributable profit. This paper also shows that central banks with less volatile distributable profits display higher ratios of equity to total assets over time. Finally, the paper examines the role of stakeholders in influencing the profit distribution regimes of central banks, and develops a non-exhaustive set of general principles that could be considered in relation to profit distribution frameworks, with the aim of strengthening the financial, and therefore institutional, independence of central banks. JEL Classification: E37, E58, M48
    Keywords: accounting framework, financial independence, financial strength, loss coverage, profit distribution
    Date: 2016–04
  2. By: Mattéo Godin (CRED, University of Namur); Jean Hindriks (CORE, Université Catholique de Louvain)
    Abstract: The mobilization of domestic tax resource has become a key issue for developing countries. In this report, we provide some facts and figures on the levels and structures of taxation around the world with special attention to Low Income Countries, (LICs). We use the new ICTD database covering 203 countries with 40 tax items over the period 1980-2010. We discuss some principles of tax design in a global economy that are relevant for LICs. We also review some critical issues on corruption and compliance to see how they relate to growth and tax evasion. We then provide a benchmark framework to assess the overall performance of the government tax collection. We use the tax effort index that measures the gap between the potential tax and the actual tax. The novelty of this tax effort index is twofold. First it takes into account spatial variables to capture the geographic dependence. Second it breaks down the tax effort analysis into different tax items to capture the possible tax shift. We conclude with a full ranking of tax effort for all countries and some suggestions of tax reform for a subset of countries that are targeted by the Belgian Development Cooperation.
    Keywords: Corporate taxation, efficient tax administration, tax enforcement, source-based and destination based taxation, origin and destination principles
    JEL: C72 H23 H70
    Date: 2015–06
  3. By: Anna Iara (European Commission)
    Abstract: After a short overview of the distribution of private wealth and asset-based taxation in EU Members, this paper provides a range of economic arguments to make the case for assetbased taxation. Thereafter, aspects of design and implementation of specific asset-based taxes, notably housing, net wealth, and gifts and inheritances, are discussed from a distributional perspective. Finally, the possible role of the EU level of policy making in the adoption of such tax instruments is addressed
    Keywords: wealth distribution, wealth taxation, capital income taxation, household data
    JEL: D31 H23 H24
    Date: 2015–12
  4. By: Irem Guceri (Oxford University Centre for Business Taxation); Li Liu (Oxford University Centre for Business Taxation)
    Abstract: With growing academic and policy interest in R&D tax incentives, the question about their effectiveness has become ever more relevant. In the absence of an exogenous policy reform, the simultaneous determination of companies' tax positions and their R&D spending causes an identification problem in evaluating tax incentives. To overcome this problem, we exploit a UK policy reform and use the population of corporation tax records that provide precise information on the amount of firm-level R&D expenditure. Using difference-in-differences and other panel regression approaches, we find a positive and significant impact of tax incentives on R&D spending, and an implied user cost elasticity estimate of around -2.3. This translates to more than a pound in additional private R&D for each pound foregone in corporation tax revenue.
    Keywords: Tax incentives; corporation tax returns; quasi-experiment
    JEL: H2 O3
    Date: 2015
  5. By: Stiroh, Kevin J. (Federal Reserve Bank of New York)
    Abstract: Remarks at the SIFMA Internal Auditors Society Education Luncheon, Harvard Club, New York City.
    Keywords: Large Institution Supervision Coordinating Committee (LISCC); Comprehensive Capital Analysis and Review (CCAR); Comprehensive Liquidity Analysis and Review (CLAR); Supervisory Assessment of Recovery and Resolution Preparedness (SRP); New York Fed Supervision Group; asymmetric information; externalities; Supervision and Regulation letters; clarity and transparency; cybersecurity; Fintech; reputational risk
    Date: 2016–04–11
  6. By: Masahiro Enomoto (Research Institute for Economics & Business Administration (RIEB), Kobe University, Japan); Tomoyasu Yamaguchi (Faculty of Business Administration, Tohoku Gakuin University)
    Abstract: The purpose of this study is to investigate the changes in accrual-based earnings management (AEM) and real earnings management (REM) in response to Japanese regulatory changes. After the U.S. Sarbanes-Oxley Act (SOX) in 2002, the Financial Instruments and Exchange Act of 2006 (J-SOX) was introduced in June 2006 in Japan, has been effective since the fiscal year ending on March 31, 2009. We shed light on the time lag between the introduction of SOX and J-SOX as a transition period. During this period, several regulatory bodies addressed the issue of internal control, considering both the SOX and the forthcoming J-SOX. This study, therefore, focuses on the J-SOX and a series of related laws and regulations in this transition period, and their effects on AEM and REM. Our results show that the level of AEM changes during the transition period before the introduction of J-SOX, while that of REM decreases after the introduction of J-SOX. The evidence generally supports the view that J-SOX and the series of regulatory changes before its implementation have an impact on the financial reporting quality of Japanese firms.
    Keywords: Accrual-based earnings management, Real earnings management, Financial instruments and exchange act of Japan
    JEL: G38 M41 M42 M48
    Date: 2016–04
  7. By: Blaufus, Kay; Möhlmann, Axel; Schwäbe, Alexander
    Abstract: Tax minimization strategies may lead to significant tax savings, which could, in turn, increase firm value. However, such strategies are also associated with significant costs, such as expected penalties and planning, agency, and reputation costs. The overall impact of firms' tax minimization strategies on firm value is, therefore, unclear. To investigate whether corporate tax minimization increases firm value, we analyze the stock price reaction to news concerning corporate tax avoidance or evasion. Our hand-collected dataset includes 139 tax news items regarding listed German firms over the period from 2003 to 2014. In contrast to previous research, we explicitly distinguish between news about legal tax minimization (tax avoidance) and illegal tax minimization (tax evasion). We show that stock market responses differ significantly between news items concerning legal and illegal activities. While we find negative abnormal returns for tax evasion news, we find positive abnormal returns for tax avoidance news. Our results do not indicate any reputation effect of legal tax minimization. Conversely, the positive market reaction to tax avoidance news is associated with firms that face high reputation risk.
    Keywords: tax avoidance,tax evasion,tax aggressiveness,tax risk,market reaction,event study
    JEL: G14 G30 H25 H26
    Date: 2016
  8. By: Henrik Jacobsen Kleven; Esben Anton Schultz
    Abstract: This paper estimates taxable income responses using a series of Danish tax reforms and population-wide administrative data since 1980. The tax variation and data in Denmark makes it possible to overcome the biases from nontax changes in inequality and mean reversion that plague the existing literature. We provide compelling graphical evidence of taxable income responses, arguably representing the first nonparametrically identified evidence of taxable income elasticities using tax reforms. We also present panel regression evidence that is extremely robust to specification, unlike previous results which have been very sensitive.
    JEL: D31 H24 H31 J22
    Date: 2014–11
  9. By: Julio López-Laborda (University of Zaragoza, Department of Public Economics, Universidad de Zaragoza); Guillermo Peña (University of Zaragoza, Department of Public Economics,)
    Abstract: Many methods of taxing financial services have been developed in recent decades, but so far, none of them is definitive. The cash-flow method, considered one of the most theoretically accurate approaches, has turned out not to be viable. The purpose of this article is to propose a new approach to taxing financial services that would be theoretically accurate and could be applied practically across countries. We develop an approach called the “mobile-ratio” method that taxes financial transactions using a rate that obtains, roughly, full taxation of the value added by financial services. The simple, neutral method generated can easily be administered by entities. This paper will be useful for public economists and policy-makers in order to raise tax revenue and improve economic efficiency and neutrality.
    Keywords: Financial VAT exemption, mobile-ratio method
    Date: 2016–04–19

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