nep-acc New Economics Papers
on Accounting and Auditing
Issue of 2016‒06‒04
six papers chosen by
Alexander Harin
Modern University for the Humanities

  1. State Taxation and the Reallocation of Business Activity: Evidence from Establishment-Level Data By Xavier Giroud; Joshua D. Rauh
  2. Current account deficits during heightened risk: menacing or mitigating? By Forbes, Kristin; Hjortsoe, Ida; Nenova, Tsvetelina
  3. The effects on consumer welfare of a corporate tax cut By Chris Murphy
  4. Fiscal burden differentiation between European Union countries as a source of opportunism, moral hazard and unproductive entrepreneurship By Andrzej Pestkowski
  5. Liquidity, Information Aggregation, and Market-Based Pay in an Efficient Market By Calcagno, Riccardo; Heider, Florian
  6. Large Depreciations: Recent Experience in Historical Perspective By Jose De Gregorio

  1. By: Xavier Giroud; Joshua D. Rauh
    Abstract: Using Census microdata on multi-state firms, we estimate the impact of state taxes on business activity. For C corporations, employment and the number of establishments have corporate tax elasticities of .0.4, and do not vary with changes in personal tax rates. Pass-through entity activities show tax elasticities of -0.2 to -0.3 with respect to personal tax rates, and are invariant with respect to corporate tax rates. Reallocation of productive resources to other states drives around half the effect. Capital shows similar patterns but is 36% less elastic than labor. The responses are strongest for firms in tradable and footloose industries.
    Date: 2016–02
  2. By: Forbes, Kristin (Monetary Policy Committee Unit, Bank of England); Hjortsoe, Ida (Monetary Policy Committee Unit, Bank of England); Nenova, Tsvetelina (Monetary Policy Committee Unit, Bank of England)
    Abstract: Large current account deficits, and the corresponding reliance on capital flows from abroad, can increase a country’s vulnerability to periods of heightened risk and uncertainty. This paper develops a framework to evaluate such vulnerabilities. It highlights the central importance of two financial factors: income on international investments and changes in the valuations of those investments. We show how the characteristics of a country’s international investment portfolio — the size of its international asset and liability holdings, their currency denominations, their split between equity and debt exposures, and their return characteristics — affect the dynamics of these financial factors. Then we decompose those dynamics into their drivers and explore how they are affected by domestic and global risk. We apply this framework to ten OECD economies, showing the flexibility of this approach and how the countries’ different international investment portfolios generate different dynamics in international investment income and positions. These examples, including a more detailed assessment based on an SVAR for the United Kingdom, show that a substantial degree of international risk sharing can occur through current accounts and international portfolios. Our framework clarifies which characteristics of a country’s international portfolio determine whether a current account deficit is ‘menacing’ or ‘mitigating’.
    Keywords: Current account; risk; international investment income; valuation effects;
    JEL: F21 F32 F36 F42
    Date: 2016–05–20
  3. By: Chris Murphy
    Abstract: This paper analyses in two ways the effects of an Australian Government proposal to reduce the corporate tax rate from 30 to 25 per cent. Murphy (2016a) modelled the proposal for the Australian Treasury using CGETAX (Murphy, 2016b), a large-scale, long-run CGE model designed for tax policy analysis. The gain in the real wage is estimated at 1.0 per cent. Depending on how the company tax cut is funded, the net gain in annual consumer welfare is between $4.1 billion and $5.2 billion in 2015/16 terms and the associated gain in real GDP is from 0.7 to 0.9 per cent. This paper also uses a highly stylised version of CGETAX to provide a theoretical analysis of the proposed tax cut, applicable to advanced, open economies in general. Echoing CGETAX including by allowing for imperfect competition, the Stylised model shows an increase in the capital-labour ratio from the reduction in the cost of capital, an increase in the labour supply induced by a higher real wage when the tax cut is passed on from internationally mobile capital to labour, and a reduction in the incentive to shift profits to lower-taxed jurisdictions (de Mooij and Devereux (2009)). This paper also discusses the likely timing on the introduction of the tax cut and the economic responses to it.
    Keywords: computable general equilibrium models, oligopoly, corporate tax, Australia
    JEL: C68 D43 H25
    Date: 2016
  4. By: Andrzej Pestkowski (Wroclaw University of Economics)
    Abstract: Free movement and freedom of establishment existing within the European Union institutions are the main factors which make European Union open for business activities. However, it should be noted that all EU countries have their own tax systems and fiscal policy. This, in turn, differentiates fiscal burden of government imposed onto its taxpayers in each Member State. These differences frequently distort the conditions of establishment. As every entrepreneur is willing to minimize costs, especially when their source are compulsory taxes, mass tax migration between Member States might be expected. Tax avoidance and tax evasion, being a form of tax migration, imply numerous economic, social and legal problems. The aim of this paper is to identify these problems along with their causes and effects in terms of fiscal burden differentiation between Member States. Descriptive, qualitative and quantitative analyses have been applied in order to explain the abovementioned phenomena. Additionally, the analyses have been accompanied by case studies.
    Keywords: fiscal burden; tax systems; opportunism; moral hazard; unproductive entrepreneurship
    JEL: E26 H26 K34 K42
    Date: 2016–05
  5. By: Calcagno, Riccardo; Heider, Florian
    Abstract: This paper studies the usefulness of making the income of a CEO depend on the stock price of the firm he runs. We assume the stock market is efficient and find that other public information about CEO performance, e.g., accounting information, is not used to determine CEO pay. But because of the feedback loop between CEO actions and the stock price, the price does not fully reflect the consequences of CEO shirking for the value of the firm. The optimal incentive contract increases stock-based pay in order to increase the sensitivity of CEO income to shirking and thus deter it. This effect is stronger when traders have worse information, which can explain the prevalence of stock-based pay in hard-to-value firms. Our model derives a measure of the wedge between financial and economic efficiency, and generates new insights about the role of market conditions such as liquidity for optimal pay contracts.
    Keywords: efficient markets; information aggregation; liquidity; market-based pay
    JEL: D86 G14 G34
    Date: 2016–05
  6. By: Jose De Gregorio
    Abstract: Data for a large sample of countries dating back to the early 1970s reveal that the large depreciations against the dollar that are occurring in many countries are not unprecedented in magnitude or duration. The pass-through to inflation from exchange rate depreciation has been slightly more muted than in previous occasions, but it is not out of line with experience since the mid-1990s. The current account adjustment has been more limited than in the past, possibly suggesting that the period of weak currencies may be prolonged.
    Date: 2016–05

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