nep-acc New Economics Papers
on Accounting and Auditing
Issue of 2017‒08‒06
ten papers chosen by

  1. The effect of tax harmonisation in the Southern African Development Community on Foreign Direct Investment By Michael Ade; Jannie Rossouw; Tendai Gwatidzo
  2. Taxation trends in the European Union: 2017 edition By European Commission
  3. Tax Audits as Scarecrows: Evidence from a Large-Scale Field Experiment By Marcelo L. Bérgolo; Rodrigo Ceni; Guillermo Cruces; Matias Giaccobasso; Ricardo Perez-Truglia
  4. The Taxation of Recreational Marijuana: Evidence from Washington State By Benjamin Hansen; Keaton Miller; Caroline Weber
  5. Cross-Border Spillovers of Balance Sheet Normalization : a speech at "Normalizing Central Banks' Balance Sheets: What Is the New Normal?" a conference sponsored by Columbia University’s School of International and Public Affairs and the Federal Reserve Bank of New York, New York, New York, July 11, 2017. By Brainard, Lael
  6. Capital Controls, Macroprudential Regulation, and the Bank Balance Sheet Channel By Shigeto Kitano; Kenya Takaku
  7. Sparse Structural Approach for Rating Transitions By Volodymyr Perederiy
  8. Cross-Border Spillovers of Balance Sheet Normalization : a speech at the National Bureau of Economic Research’s Monetary Economics Summer Institute, New York, New York, July 13, 2017. By Brainard, Lael
  9. A Cross-Country Database of Fiscal Space By M. Ayhan Kose; Sergio Kurlat; Franziska Ohnsorge; Naotaka Sugawara
  10. Back to the Future: Backtesting Systemic Risk Measures during Historical Bank Runs and the Great Depression By Brownlees, Christian; Chabot, Ben; Ghysels, Eric; Kurz, Christopher

  1. By: Michael Ade; Jannie Rossouw; Tendai Gwatidzo
    Abstract: This paper investigates the effect of tax harmonisation on foreign direct investment (FDI) in the Southern African Development Community (SADC) region. Findings of a first attempt to investigate the linkage between taxation (tax rates and policy) and FDI (in all 15 countries), using an eclectic panel data modeling approach from 1990-2010 are presented. A new value added tax (VAT) harmonisation variable is introduced (in addition to a corporate income tax (CIT) harmonisation variable) via a tax policy harmonisation measure (TPHM) in the panel empirical investigation, complemented by a sensitivity analysis (using the extreme-bound analysis (EBA) technique) on the impact of taxation on FDI inflows to the SADC. The investigation shows that when errors in the regressors (for instance contemporaneous correlation, heteroskedasticity, cross-sectional dependence, endogeneity) are controlled for, tax harmonisation (amongst other contributing factors) does indeed have a significant causal relationship with FDI in the SADC. The study generally provides empirical evidence to support the argument for effectively using taxation towards higher FDI inflows in the region. Policy considerations towards improved tax harmonisation emanating from the paper include the need for individual SADC governments to promote national tax policies aimed at supporting regional tax harmonisation objectives, through strengthening existing tax agreements and treaties. This is necessary to reduce disparity in tax rates (including the definition of tax bases), improve existing level of tax co-movement, mitigate tax leakages and promote FDI inflows.
    Keywords: SADC, FDI and Tax Policy Harmonisation, Panel data, Cross-sectional dependence, Sensitivity analysis
    JEL: E60 F15 F21 H25 H27
    Date: 2017–07
  2. By: European Commission
    Abstract: This report contains a detailed statistical and economic analysis of the tax systems of the Member States of the European Union, plus Iceland and Norway, which are Members of the European Economic Area. The data are presented within a unified statistical framework (the ESA2010 harmonised system of national and regional accounts), which makes it possible to assess the heterogeneous national tax systems on a fully comparable basis.
    Keywords: European Union, taxation
    JEL: H23 H24 H25 H27 H71
    Date: 2017–07
  3. By: Marcelo L. Bérgolo; Rodrigo Ceni; Guillermo Cruces; Matias Giaccobasso; Ricardo Perez-Truglia
    Abstract: According to the canonical model of Allingham and Sandmo (1972), firms evade taxes by making a trade-off between a lower tax burden and higher expected penalties. However, there is still no consensus about whether real-world firms operate in this rational way. We conducted a large-scale field experiment, sending letters to over 20,000 firms that collectively pay over 200 million dollars in taxes per year. In our letters, we provided firms with exogenous but nondeceptive signals about key inputs for their evasion decisions, such as audit probabilities and penalty rates. We measure the effect of these signals on their subsequent perceptions about the auditing process, based on survey data, as well as on the actual taxes paid, according to administrative data. We find that firms do increase their tax compliance in response to information about audits. However, the patterns in these responses are inconsistent with utility maximization. The evidence suggests that, much like scarecrows frighten off birds, audits can be a significant deterrent for tax evaders even though they would be perceived as harmless by a rational optimizer.
    JEL: C93 H26 K42
    Date: 2017–07
  4. By: Benjamin Hansen; Keaton Miller; Caroline Weber
    Abstract: The median United States voter supports the legalization of marijuana, at least in part due to a desire to increase state tax revenues. However, states with legal markets have implemented wildly different regulatory schemes with tax rates ranging from 3.75 to 37 percent, indicating that policy makers have a range of beliefs about industry responses to taxes and regulation. We examine a policy reform in Washington: a switch from a 25 percent gross receipts tax collected at every step in the supply chain to a sole 37 percent excise tax at retail. Using novel, comprehensive administrative data, we assess responses to the reform throughout the supply and consumption chain. We find the previous tax regime provided strong incentives for vertical integration. Tax invariance did not hold, with some types of firms benefiting much more than predicted. Consumers bear 44 percent of the additional retail tax burden. Finally, we find evidence that consumer demand for marijuana is price-inelastic in the short-run, but becomes price-elastic within a few weeks of a price increase.
    JEL: H2 H20 H21 H22 H23 H25 H26 H32 H71 I1 I18 K4
    Date: 2017–07
  5. By: Brainard, Lael (Board of Governors of the Federal Reserve System (U.S.))
    Date: 2017–07–31
  6. By: Shigeto Kitano (Research Institute for Economics & Business Administration (RIEB), Kobe University, Japan); Kenya Takaku (Faculty of International Studies, Hiroshima City University, Japan)
    Abstract: We develop a sticky price, small open economy model with financial frictions à la Gertler and Karadi (2011), in combination with liability dollarization. An agency problem between domestic financial intermediaries and foreign investors of emerging economies introduces financial frictions in the form of time-varying endogenous balance sheet constraints on the domestic financial intermediaries. We consider a shock that tightens the balance sheet constraint and show that capital controls, the effects of which are rigorously examined as a policy tool for the emerging economies, can be a credit policy tool to mitigate the negative shock.
    Keywords: Capital control; Macroprudential regulation; Financial frictions; Financial intermediaries; Balance sheets; Small open economy; Liability dollarization; DSGE; Welfare
    JEL: E69 F32 F41
    Date: 2017–07
  7. By: Volodymyr Perederiy
    Abstract: In banking practice, rating transition matrices have become the standard approach of deriving multi-year probabilities of default (PDs) from one-year PDs, with the latter normally being available from Basel ratings. Rating transition matrices have gained in importance with the newly adopted IFRS 9 accounting standard. Here, the multi-year PDs can be used to calculate the so-called expected credit losses (ECL) over the entire lifetime of relevant credit assets. A typical approach for estimating the rating transition matrices relies on calculating empirical rating migration counts and frequencies from rating history data. However, for small portfolios this approach often leads to zero counts and high count volatility, which makes the estimations unreliable and volatile, and can also produce counter-intuitive prediction patterns. This paper proposes a structural model which overcomes these problems. We retort to a plausible assumption of an autoregressive mean-reverting specification for the underlying ability-to-pay process. With only three parameters, this sparse process can describe well an entire typical rating transition matrix, provided the one-year PDs of the rating classes are specified (e.g. in the rating master scale). The transition probabilities produced by the structural approach are well-behaved. The approach reduces significantly the statistical degrees of freedom of the estimated transition probabilities, which makes the rating transition matrix significantly more reliable for small portfolios. The approach can be applied to data with as few as 50 observed rating transitions. Moreover, the approach can be efficiently applied for data consisting of continuous (undiscretized) PDs. In the IFRS9 context, the approach offers an additional merit of an easy way to account for the macroeconomic adjustments, which are required by the IFRS 9 accounting standard.
    Date: 2017–07
  8. By: Brainard, Lael (Board of Governors of the Federal Reserve System (U.S.))
    Date: 2017–07–31
  9. By: M. Ayhan Kose (WorldBank, Development Prospects Group; Brookings Institution; CEPR, and CAMA); Sergio Kurlat (WorldBank, Development Prospects Group); Franziska Ohnsorge (WorldBank, Development Prospects Group; CAMA); Naotaka Sugawara (WorldBank, Development Prospects Group)
    Abstract: This paper presents a comprehensive cross-country database of fiscal space, broadly defined as the availability of budgetary resources for a government to service its financial obligations. The database covers up to 200 countries over the period 1990-2016, and includes 28 indicators of fiscal space grouped into four categories: debt sustainability, balance sheet vulnerability, external and private sector debt related risks as potential causes of contingent liabilities, and market access. We illustrate potential applications of the database by analyzing developments in fiscal space across three time frames: over the past quarter century; during financial crises; and during oil price plunges. The main results are as follows. First, fiscal space had improved in many countries before the global financial crisis. In advanced economies, following severe deteriorations during the crisis, many indicators of fiscal space have virtually returned to levels in the mid-2000s. In contrast, fiscal space has shrunk in many emerging market and developing economies since the crisis. Second, financial crises tend to coincide with deterioration in multiple indicators of fiscal space, but they are often followed by reduced reliance on short-term borrowing. Finally, fiscal space narrows in energy-exporting emerging market and developing economies during oil price plunges but later expands, often because of procyclical fiscal tightening and, in some episodes, a recovery in oil prices.
    Keywords: Fiscal policy; sovereign debt; fiscal deficit; private debt; financial crises; oil prices.
    JEL: E62 H62 H63
    Date: 2017–08
  10. By: Brownlees, Christian; Chabot, Ben; Ghysels, Eric; Kurz, Christopher
    Abstract: We evaluate the performance of two popular systemic risk measures, CoVaR and SRISK, during eight financial panics in the era before FDIC insurance. Bank stock price and balance sheet data were not readily available for this time period. We rectify this shortcoming by constructing a novel dataset for the New York banking system before 1933. Our evaluation exercise focuses on assessing whether systemic risk measures were able to detect systemically important financial institutions and to provide early warning signals of aggregate financial sector turbulence. The predictive ability of CoVaR and SRISK is measured controlling for a set of commonly employed market risk measures and bank ratios. We find that CoVaR and SRISK help identifying systemic institutions in periods of distress beyond what is explained by standard risk measures up to six months prior to the panic events. Increases in aggregate CoVaR and SRISK precede worsening conditions in the financial system; however, the evidence of predictability is weaker.
    Keywords: Financial crises; Risk Measures; systemic risk
    JEL: G01 G21 G28 N21
    Date: 2017–07

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