nep-acc New Economics Papers
on Accounting and Auditing
Issue of 2016‒05‒14
ten papers chosen by
Alexander Harin
Modern University for the Humanities

  1. Effective Marginal Tax Rates for Low- and Moderate-Income Workers in 2016 By Congressional Budget Office
  2. Why Corporate Taxation Means Source Taxation - A Response to the OECD’s Actions against Base Erosion and Profit Shifting By Luzius Cavelti; Christian Jaag; Tobias Rohner
  3. Do tax incentives for research increase firm innovation? An RD Design for R&D By Elias Einiö; Dechezleprêtre; - Martin Antoine; - Nguyen Ralf; - Van Reenen Kieu-Trang; John
  4. Organizational Complexity and Balance Sheet Management in Global Banks By Nicola Cetorelli; Linda S. Goldberg
  5. Fees, Fees and More Fees: How Private Equity Abuses Its Limited Partners and U.S. Taxpayers By Eileen Appelbaum; Rosemary Batt
  6. The 1920 Japanese income tax reform: government, business and democratic constraints By Shunsuke Nakaoka
  7. Fair Trade certification Italian style. The Altromercato experience By Costantino, Marco; Micotti, Marco
  8. Housing and Tax-Deferred Retirement Accounts By Anson T. Y. Ho; Jie Zhou
  9. Partial tax harmonization through infrastructure coordination By Sanz Córdoba, Patrícia; Theilen, Bernd, 1965-
  10. The effect of trade liberalization on firm-level profits: an event-study approach By Holger Breinlich

  1. By: Congressional Budget Office
    Abstract: In 2016, low- and moderate-income workers will face an effective marginal tax rate of 31 percent, on average. Federal individual income and payroll taxes will be the main contributors.
    JEL: H20 H24 I38
    Date: 2015–11–19
  2. By: Luzius Cavelti; Christian Jaag; Tobias Rohner
    Abstract: It is widespread practice around the world that corporate entities pay taxes to the country where they are formally registered and to the country in whose territory they have a permanent establishment. While the former is generally known as the ‘country-of-residence’ the latter is usually referred to as the ‘country-of-source’. This article questions separate taxation based on this distinction between the country-of-residence and the country-of-source. It argues for a departure from the traditional international allocation of the right to tax corporate income and suggests that a corporate entity should instead pay income tax exclusively to the countries in which it has relevant business activities. Moreover, in examining the question of where business activities of multinational corporations effectively take place, this article describes criteria for determining source countries. Furthermore, it offers a method for formulary apportionment of corporate income between those countries in which a given multinational corporation generates income. The article argues that source taxation of corporate income would be coherent with the economic nature of corporate income taxation. Source taxation of corporate income would also make the arbitrary concept of corporate residence irrelevant, and it would allow the outdated legal concept of permanent establishment to be abolished. This article takes an interdisciplinary approach to argue from both legal and economic perspectives. It adds to the body of literature that discusses how countries should tax corporate entities doing business across national borders. It also contributes to the ongoing debate about the OECD’s recent controversial efforts to prevent corporations shifting profits between countries to minimize their exposure to national tax systems (base erosion and profit sharing, or BEPS).
    Keywords: Corporate Taxation, BEPS
    JEL: L43 L51
    Date: 2016–04
  3. By: Elias Einiö; Dechezleprêtre; - Martin Antoine; - Nguyen Ralf; - Van Reenen Kieu-Trang; John
    Abstract: We present the first evidence showing causal impact of research and development (R&D) tax incentives on innovation outcomes. We exploit a change in the asset-based size thresholds for eligibility for R&D tax subsidies and implement a Regression Discontinuity Design using administrative tax data on the population of UK firms. There are statistically and economically significant effects of the tax change on both R&D and patenting, with no evidence of a decline in the quality of innovation. R&D tax price elasticities are large at about 2.6, probably because the treated group is from a sub-population subject to financial constraints. There does not appear to be pre-policy manipulation of assets around the thresholds that could undermine our design, but firms do adjust assets to take advantage of the subsidy post-policy. We estimate that over 2006-11 business R&D would be around 10% lower in the absence of the tax relief scheme.
    Keywords: R&D, patents, tax, innovation, Regression Discontinuity design
    JEL: H32 O31 H23 O32 H25
    Date: 2016–04–13
  4. By: Nicola Cetorelli; Linda S. Goldberg
    Abstract: Banks have progressively evolved from being standalone institutions to being subsidiaries of increasingly complex financial conglomerates. We conjecture and provide evidence that the organizational complexity of the family of a bank is a fundamental driver of the business model of the bank itself, as reflected in the management of the bank’s own balance sheet. Using micro-data on global banks with branch operations in the United States, we show that branches of conglomerates in more complex families have a markedly lower lending sensitivity to funding shocks. The balance sheet management strategies of banks are very much determined by the structure of the organizations the banks belong to. The complexity of the conglomerate can change the scale of the lending channel for a large global bank by more than 30 percent.
    JEL: F3 G15 G21
    Date: 2016–04
  5. By: Eileen Appelbaum; Rosemary Batt
    Abstract: The private equity industry receives billions of dollars in income each year from a variety of fees that it collects from investors as well as from companies it buys with investors’ money. This fee income has come under increased scrutiny from investigative journalists, institutional investors in these funds, the Securities and Exchange Commission (SEC), the Internal Revenue Service (IRS), and the tax-paying public. Since 2012, private equity firms have been audited by the SEC; as a result, several abusive and possibly fraudulent practices have come to light. This report provides an overview of these abuses — the many ways in which some private equity (PE) firms and their general partners gain at the expense of their investors and tax-payers. Private equity general partners (GPs) have misallocated PE firm expenses and inappropriately charged them to investors; have failed to share income from portfolio company monitoring fees with their investors, as stipulated; have waived their fiduciary responsibility to pension funds and other LPs; have manipulated the value of companies in their fund’s portfolio; and have collected transaction fees from portfolio companies without registering as broker-dealers as required by law. In some cases, these activities violate the specific terms and conditions of the Limited Partnership Agreements (LPAs) between GPs and their limited partner investors (LPs), while in others vague and misleading wording allows PE firms to take advantage of their asymmetric position of power vis-à-vis investors and the lack of transparency in their activities. In addition, some of these practices violate the U.S. tax code. Monitoring fees are a tax deductible expense for the portfolio companies owned by PE funds and greatly reduce the taxes these companies pay. In many cases, however, no monitoring services are actually provided and the payments are actually dividends, which are taxable, that are paid to the private equity firm.
    JEL: G G2 G28 G3 G38
    Date: 2016–05
  6. By: Shunsuke Nakaoka
    JEL: N0
    Date: 2016–04
  7. By: Costantino, Marco (Associazione Italiana per la Cultura della Cooperazione e del Non Profit); Micotti, Marco (Associazione Italiana per la Cultura della Cooperazione e del Non Profit)
    Abstract: Certification is one of the most hotly debated issues in the fair trade international movement. Fair Trade oriented consumers and public administrations demand more and more transparency and accountability, while fair trade producers’ organizations press for cheaper models, and distributors ask for very visible labels to stress the ethical features of the product. So far, it has been very difficult to identify a single model satisfying all these different needs. In the past twenty years, two main approaches have been adopted to meet the above-mentioned needs and to ensure the reliability of Fair Trade: a product-centered approach and an organization-centered approach. Both approaches present advantages and disadvantages regarding certification quality versus costs and visibility in the eyes of all the stakeholders involved in the value chain. We here present an original fair trade evaluation and monitoring model, framed into the organization-centered approach and experimented by the leading Italian Fair Trade organization, CTM Altromercato throughout its 27- year-long history. We analyse and compare, for the first time, the most significant data collected in the last 5 years through the evaluation forms designed by CTM Altromercato’s Project Committee (the internal body responsible for the evaluation system), trying to derive useful results regarding producer organizations’ performance, with particular reference to compliance with fair trade standards. For the purposes of the present paper, 55 different fair trade producer organizations from 23 countries were examined, accounting for about one third of all CTM Altromercato's suppliers. The statistical analysis of the data included in the evaluation grids, with particular reference to major and minor non compliances, observations and good practices observed during audits, offers an insight into CTM Altromercato's partners, highlighting their main and most common strengths and weaknesses. Finally, an overview on the next challenges and development of CTM Altromercato’s evaluation system is provided: the new WFTO certification system and labelling policy is going to increase the number of certified organizations and, at the same time, to introduce some changes aimed to improve the evaluation process effectiveness. In fact, the increasing number of “domestic” Fair Trade products is pushing for a customized approach to evaluate fair trade compliance within such a different context.
    Keywords: product certification; organization assessment; monitoring; Fair Trade principles; long term relationship; 2nd level organizations; WFTO assessment system; quantitative analysis of Fair Trade assessment process outcomes
    JEL: F13 I38 O15
    Date: 2015–06–15
  8. By: Anson T. Y. Ho; Jie Zhou
    Abstract: Assets in tax-deferred retirement accounts (TDA) and housing are two major components of household portfolios. In this paper, we develop a life-cycle model to examine the interaction between households’ use of TDA and their housing decisions. The model generates life-cycle patterns of home ownership and the composition of net worth that are broadly consistent with the data from the Survey of Consumer Finances. We find that TDA promotes home ownership, as households take advantage of the preferential tax treatments for both TDA and home ownership. They substitute TDA assets for home equity by accumulating wealth in TDA and making smaller down payments (taking out bigger mortgages); consequently, they become homeowners earlier in their lives. On the other hand, housing-related policies, such as a minimum down payment requirement and mortgage interest deductibility, affect households’ housing decisions more than their use of TDA.
    Keywords: Economic models, Housing
    JEL: C61 D14 D91 E21 H24 R21
    Date: 2016
  9. By: Sanz Córdoba, Patrícia; Theilen, Bernd, 1965-
    Abstract: In this article we analyze the role that infrastructure coordination plays to in achieving partial tax harmonization in a coalition of asymmetric jurisdictions. We find that infrastructure coordination with di¤erent investment levels can facilitate partial tax harmonization between asymmetric jurisdictions when asymmetries are not too large. Furthermore, agreeing on a common investment level can be even more e¤ective in facilitating partial tax harmonization between asymmetric jurisdictions. Our results explain the harmonization of corporate tax rates observed in the EU between 1995 and 2006 where there was simultaneous convergence of public infrastructure investments facilitated via EU structural funds. Keywords: Partial Tax Harmonization; Infrastructure Coordination JEL Classification Numbers: F15, F38, H20, H87
    Keywords: Integració econòmica, Política fiscal, Finances internacionals, Impostos, 336 - Finances. Banca. Moneda. Borsa,
    Date: 2016
  10. By: Holger Breinlich
    Abstract: I use an event study approach to present novel evidence on the impact of trade liberalization on firmlevel profits. Using the uncertainty surrounding the negotiation and ratification process of the Canada- United States Free Trade Agreement of 1989 (CUSFTA), I estimate the impact of different types of tariff reductions on the abnormal returns of Canadian manufacturing firms. I find that Canadian import tariff reductions lead to lower, and reductions in Canadian intermediate input tariffs to higher abnormal returns. The impact of U.S. tariff reductions is less clear and depends on the size of the affected firms. I also calculate the total profit increase implied by my estimates. Overall, CUSFTA increased per-period profits by around 1.2%. This was mainly driven by intermediate input tariff reductions which more than offset the negative effect of Canadian import tariff reductions.
    Keywords: profitability; trade liberalization; stock market event studies; Canada-U.S. free trade agreement
    JEL: J1
    Date: 2016–01

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