nep-acc New Economics Papers
on Accounting and Auditing
Issue of 2016‒08‒28
nine papers chosen by
Alexander Harin
Modern University for the Humanities

  1. The effects of size-based regulation on small firms: evidence from VAT threshold By Jarkko Harju; Tuomas Matikka; Timo Rauhanen
  2. Fault detection and diagnosis for compliance monitoring in international supply chains By Wang, Yuxin; Tian, Yifu; Teixeira, André; Hulstijn, Joris; Tan, Yao-Hua
  3. The Impact of Taxes on the Extensive and Intensive Margins of FDI By Davies, Ronald B.; Siedschlag, Iulia; Studnicka, Zuzanna
  4. Networks of value added trade By Amador, João; Cabral, Sónia
  5. Tax Reforms, Redistribution and Population Aging : Evidence from Japan By Miyazaki, Takeshi; Kitamura, Yukinobu; Ohno, Taro
  6. VAT multipliers and pass-through dynamics By Simon Voigts; ;
  7. Actuarial neutrality and financial incentives for early retirement in the Austrian pension system By Kucsera, Dénes; Christl, Michael
  8. The Credit-Card-Services Augmented Divisia Monetary Aggregates By William Barnett; Marcelle Chauvet; Danilo Leiva-Leon; Liting Su
  9. Case Study Analysis of Corporate Governance and Management Control at Kendallville Bank By Eisenberg, Paul

  1. By: Jarkko Harju; Tuomas Matikka; Timo Rauhanen
    Abstract: Various types of size-based regulations for firms are typical in most countries (tax schedules, accounting rules, health and safety standards etc.). However, there is only limited evidence of how owners of small firms respond to such rules, and what are the underlying mechanisms behind the observed behavior. We study these questions by examining the effects of the value-added tax (VAT) sales threshold using tax register data on the universe of Finnish firms and their owners. We find sizable bunching of firms in the sales distribution just below the VAT threshold. This implies that small firms actively avoid VAT liability. We utilize variation in both the VAT rate and reporting requirements to provide compelling evidence that the response is caused by the compliance costs of VAT reporting rather than the size of the tax rate. This shows that the costs related to reporting and understanding taxes induce greater distortions than pure tax incentives, especially among low-income entrepreneurs. In addition, we find no explicit evidence of avoidance or evasion, which suggests that firms respond by reducing their true output. Also, bunching behavior is very permanent, implying that the VAT threshold hinders the growth of small firms.
    Keywords: Value-added tax, compliance costs, small firms, entrepreneurs, bunching
    JEL: H32 L11 D22 H25
    Date: 2016–06–14
  2. By: Wang, Yuxin; Tian, Yifu; Teixeira, André; Hulstijn, Joris (Tilburg University, School of Economics and Management); Tan, Yao-Hua
    Abstract: Currently international supply chains are facing risks concerning faults in compliance, such as altering shipping documentations, fictitious inventory, and inter-company manipulations. In this paper a method to detect and diagnose fault scenarios regarding customs compliance in supply chains is proposed. This method forms part of a general approach called model-based auditing, which is based on a normative meta-model of the movement of money and goods or services. The modeling framework is proposed on compliance monitoring of supply chains with focus on information systems and compliance reporting tools. The innovation lies in the application and mapping of modeling techniques from dynamical systems engineering to business process analysis for audit and supervision purposes. Specifically, the application domain is where money, goods as well as information are transferred between international supply chain partners. A case study of a leading company in electronics manufacturing applying the model is analyzed.
    Date: 2016
  3. By: Davies, Ronald B.; Siedschlag, Iulia; Studnicka, Zuzanna
    Abstract: The design of optimal tax policy, especially with respect to attracting FDI, hinges on whether taxes affect multinational firms at the extensive or the intensive margins. Nevertheless, the literature has not yet explored the simultaneous impact of taxation on FDI on these two margins. Using firm-level cross-border investments into Europe during 2004-2013, we do so with a Heckman two-step estimator, an approach which also allows us to endogenize the number of investments and include home country and parent firm characteristics. We find that taxes affect both margins, particularly for firms that invest only once, with 92 percent of tax-induced changes in aggregate inbound FDI driven by movements at the extensive margin. In addition, we find significant effects of both home country and parent firm characteristics, pointing towards the granularity of investment decisions.
    Date: 2016–07
  4. By: Amador, João; Cabral, Sónia
    Abstract: Global Value Chains (GVCs) became the paradigm for the production of most goods and services around the world. Hence, interconnections among countries can no longer be adequately assessed through standard bilateral gross trade flows and new methods of analysis are needed. In this paper, we compute measures of network analysis and apply visualisation tools to value added trade flows in order to understand the nature and dynamics of GVCs. The paper uses data on the bilateral foreign value added in exports for the period 1995-2011 and, in each year, GVCs are represented as directed networks of nodes (countries) and edges (value added flows). The analysis is extended beyond total trade flows to discuss the distinct roles of goods and services in GVCs. Moreover, the differences between Germany, the US, China and Russia as major suppliers of value added in GVCs are also examined. JEL Classification: F12, F14, C67
    Keywords: global value chains, input-output tables, international trade, network analysis
    Date: 2016–07
  5. By: Miyazaki, Takeshi; Kitamura, Yukinobu; Ohno, Taro
    Abstract: In the 1980s, income tax rates decreased and income tax deduction thresholds changed through income tax reforms in the OECD countries. Likewise, in Japan in the 1980s and 1990s, income tax rates decreased and the income tax deduction threshold increased. Recently, it has been pointed out that inequality and redistribution vary over different age groups. This study attempts to explore how different the redistributive effects of the income tax reforms in Japan are among various age groups, using Japanese household microdata for the period 1984–2009. The following results are obtained. First, the overall redistributive effect was greatest for the elderly group, followed by the middle-age group, and then the young group for the period 1984–2009. Furthermore, this trend increased steadily over time. Second, the difference in the total redistributive effect between the young and elderly increased owing to a large reduction in the base effect for the young. Third, the redistributive effect of income tax for the older elderly group is smaller than that for the younger elderly group. The consequences from Japan’s experience could provide insightful suggestions for redistribution policies in other countries, most of which will face an aging society in the future.
    Keywords: Base effect, personal income tax, population aging, rate effect, redistribution
    JEL: D31 H2 H24
    Date: 2016–08
  6. By: Simon Voigts; ;
    Abstract: To quantify fiscal multipliers in Eurozone countries, ECB, European Commission and IMF draw heavily on large-scale DSGE models. In these models, the value added tax (VAT) is implemented as consumption tax, implying essentially full contemporaneous pass-through of changes in the tax liability to consumers. However, empirical evidence suggests that VAT pass-through in Europe occurs only gradually. To investigate how realistic pass-through dynamics affect VAT multipliers, a DSGE model is augmented by a retail sector, which allows to replicate empirical pass- through estimates. The resulting short-run multipliers are dramatically smaller than those from a consumption tax, suggesting systematic over- estimation in institutional research.
    Keywords: Fiscal multipliers, value added tax, tax pass-through, DSGE models.
    JEL: E62
    Date: 2016–08
  7. By: Kucsera, Dénes; Christl, Michael
    Abstract: This paper studies actuarial neutrality in the Austrian pension system. It is often argued that actuarial neutrality constitutes an incentive for people to retire. We show that there are almost no financial incentives within the Austrian pension corridor, when we use the traditional definition of actuarial neutrality. Taking taxation into account, our results suggest that financial incentives for early retirement stem mainly from the Austrian tax system and not from the pension system itself.
    Keywords: actuarial neutrality,early retirement,pension system,retirement
    JEL: J26 H55
    Date: 2016
  8. By: William Barnett (Department of Economics, The University of Kansas; Center for Financial Stability, New York City; IC2 Institute, University of Texas at Austin); Marcelle Chauvet (University of California at Riverside); Danilo Leiva-Leon (Central Bank of Chile); Liting Su (Department of Economics, The University of Kansas;)
    Abstract: While credit cards provide transactions services, credit cards have never been included in measures of the money supply. The reason is accounting conventions, which do not permit adding liabilities to assets. However, index number theory measures service flows and is based on aggregation theory, not accounting. We derive theory needed to measure the joint services of credit cards and money. We provide and evaluate two such aggregate measures having different objectives. We initially apply to NGDP nowcasting. Both aggregates are being implemented by the Center for Financial Stability, which will provide them to the public monthly, along with Bloomberg Terminals.
    Keywords: Credit Cards, Money, Credit, Aggregation Theory, Index Number Theory, Divisia Index, Risk, Asset Pricing, Nowcasting, Indicators.
    JEL: C43 C53 C58 E01 E3 E40 E41 E51 E52 E58 G17
    Date: 2016–08
  9. By: Eisenberg, Paul
    Abstract: The present paper addresses the case study of a financial institution, the Kendallville Bank, developed by The Anti-Fraud Collaboration. The constituents of the Collaboration are the Center for Audit Quality, Financial Executives International, the National Association of Corporate Directors, and The Institute of Internal Auditors. These organisations are concerned with financial reporting fraud deterrence and detection. The case study approaches financial reporting fraud at a multidimensional level. It explores the corporate governance arrangements and management control instruments at place at the Kendallville Bank. The findings are discussed against the theoretical framework of the Agency Theory and the Stewardship Theory. Shortcomings of the arrangements are identified and safeguards are recommended on the background of international corporate governance best practice and academic literature. The risks arising from corporate governance weaknesses are addressed through various risk control procedures. Culture control is acknowledged as a major instrument to improve effectiveness and performance of the bank through a shift in the interpersonal interaction of the Board members, the executive team and the auditors.
    Keywords: Corporate Governance, Board Committees, Auditor Ethics, Agency Theory, Stewardship Theory, Change Risk, Culture Control
    JEL: A23 G21 G31 G34 M12 M14 M42 M53
    Date: 2016–06–16

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