nep-acc New Economics Papers
on Accounting and Auditing
Issue of 2017‒11‒12
fourteen papers chosen by
Alexander Harin
Modern University for the Humanities

  1. Taxing Intellectual Property in the Global Economy: A Plea for Regulated and Internationally Coordinated Profit Splitting By Wolfram F. Richter
  2. Assessing the Sustainability of External Imbalances in the European Union By António Afonso; Florence Huart; João Tovar Jalles; Piotr Stanek
  3. Sustainability of an Economy Relying on Two Reproducible Assets By Robert D. Cairns; Stellio Del Campo; Vincent Martinet
  4. United States Is Outlier in Tax Trends in Advanced and Large Emerging Economies By Simeon Djankov
  5. How Do Accounting and Legal Experts View the Role of Regional Financial Institutions in Supporting SMEs? -Based on a 2016 Questionnaire Study of Accounting and Legal Experts- By Nobuyoshi Yamori; Koji Yoneda
  6. The Effects of Presumptive Methods of Taxation on Revenue Mobilization in the Value Added Tax By Gohar S. Sedrakyan
  7. The Optimal Taxation of Risky Capital Income: The Rate of Return Allowance By Kevin Spiritus; Robin Boadway
  8. International taxation and M&A prices By von Hagen, Dominik; Pönnighaus, Fabian Nicolas
  9. Estimating the Tax and Credit-Event Risk Components of Credit Spreads By Benzoni, Luca; Goldstein, Robert S.
  10. Politically Feasible Reforms of Non-Linear Tax Systems By Felix Bierbrauer; Pierre C. Boyer
  11. Are current accounts driven by competitiveness or asset prices? A synthetic model and an empirical test By Guschanski, Alexander; Stockhammer, Engelbert
  12. Transparency in state debt disclosure By Zhao, Bo; Wang, Wen
  13. Trump's tax reform plan: a short overview By Luigi Bernardi
  14. Accrual Accounting and Resource Allocation: A General Equilibrium Analysis By Choi, Jung Ho

  1. By: Wolfram F. Richter
    Abstract: Inter-country equity in the taxation of IP is a contentious issue. With its BEPS initiative, the OECD aims at taxing in accordance with value creation even though there are admitted difficulties in determining the actual place of value creation. The European Commission promotes the introduction of unitary taxation. The proposal’s drawback is that it lacks incentive compatibility in information exchange. Furthermore, it stipulates a cost-dependent apportionment of the common consolidated corporate tax base that incentivizes locating R&D in low-tax countries. Against this background, this paper makes a case for an internationally regulated split of the profit earned with imported IP.
    Keywords: intellectual property, tax competition, profit split, formulary apportionment, Shapley value
    JEL: H25 O34 M48 F23
    Date: 2017
  2. By: António Afonso; Florence Huart; João Tovar Jalles; Piotr Stanek
    Abstract: We assess the sustainability of the current account (CA) balance, net international investment position (NIIP) and net external debt (NED) in a sample of EU countries using two complementary approaches. First, we employ both time-series and panel-data stationarity tests of current account balance-to-GDP ratios as well as cointegration tests of exports and imports of goods and services. Second, we assess the level of trade balance that stabilizes the NIIP and the NED. We find that there is sustainability of the CA balance mainly in a few surplus countries whereas there is more concern about the sustainability of the NIIP or NED in countries with a credit position than in countries with a debit position. Both approaches are consistent with each other given the relationship between flows and stocks, the existence of important structural breaks, and valuation effects via the exchange rate.
    Keywords: current account, exports, imports, net foreign assets, unit roots, structural breaks, cointegration, error-correction, cross-sectional dependence European Union.
    JEL: C22 C23 F32 F34 F36 F41
    Date: 2017–09
  3. By: Robert D. Cairns; Stellio Del Campo; Vincent Martinet
    Abstract: Evaluating the sustainability of a society requires a system of shadow or accounting values derived from the sustainability objective. As a first step toward the derivation of such shadow values for a maximin objective, this paper studies an economy composed of two reproducible assets, each producing one of two consumption goods. The effect of the substitutability between goods in utility is studied by postulating, in turn, neoclassical diminishing marginal substitutability, perfect substitutability and perfect complementarity. The degree of substitutability has strong effects on the maximin solution, affecting the regularity or non-regularity of the program, and on the accounting values. This has important consequences for the computation of genuine savings and the sustainability prospects of future generations.
    Keywords: sustainable development, maximin, sustainability accounting, substitutability
    JEL: O44 Q56
    Date: 2017
  4. By: Simeon Djankov (Peterson Institute for International Economics)
    Abstract: In this comparative analysis of tax systems in advanced and large emerging economies, the United States stands out as an anomaly. Over the past 30 years the average corporate income tax rate in the 46 countries studied has fallen to about 20 to 25 percent, nearly every country has introduced carbon taxes, and personal income taxes have stabilized around 35 to 45 percent. By contrast, the US tax system relies primarily on high direct personal and corporate taxes and has no value-added tax (VAT) or carbon tax. The US Congress should cut the corporate tax rate by 10 to 15 percentage points, to reach the OECD average and boost US competitiveness. Lawmakers can further consider a shift to indirect taxes like the VAT, to make up for revenues that would be lost under a reduced corporate tax rate.
    Date: 2017–11
  5. By: Nobuyoshi Yamori (Research Institute for Economics & Business Administration (RIEB), Kobe University, Japan); Koji Yoneda (Faculty of Economics, Kumamoto Gakuen University, Japan)
    Abstract: In February 2016 we administered a questionnaire to 700 tax accountants, certified accountants and lawyers, and conducted a study of the actual state of regional revitalization efforts by experts and the issues they faced. In this paper, we use some of the results of this study to analyze the actual state of collaborations between regional financial institutions and accounting/legal experts, and the issues they face, with respect to providing support to regional SMEs (small and medium-sized enterprises). Efforts by regional financial institutions are not always fully visible to experts, and collaboration between experts and regional financial institutions is still developing. In the future, deepened mutual understanding through greater regular contact between them will be important for increasing support capabilities for regional SMEs.
    Keywords: SME support, Region-based relationship banking, Regional finance, Experts, Questionnaire
    Date: 2017–10
  6. By: Gohar S. Sedrakyan (International Center of Public Policy, Andrew Young School of Policy Studies, Georgia State University)
    Abstract: Recent economic studies of presumptive taxation in the ECA region suggest negative effects of these tax modes on tax revenues mobilization. This study uses a three-stage methodology to estimate the effect of presumptive taxation on revenue mobilization for the VAT. First, we develop a new approach to estimate the true VAT potential tax base in an economy that includes presumptive taxation. Next, the paper assesses potential tax collections reflecting true taxable capacity and a tax effort index, suggesting the presence of inefficiencies in the tax system and sizable tax avoidance. Second, we use regression analysis to test for the scale of impact of presumptive taxation on VAT collections. Third, we use vector autoregression analysis (VAR) to analyze the bidirectional effect of VAT actual and potential collection and presumptive taxation modes in short and long-term perspective. For contrasting the variance of impact of presumptive taxation on VAT mobilization we use two different presumptive tax modes, simplified tax and presumptive payments, with different tax structures. We use data for Armenia for the numerical application of the analysis. Our findings reveal that, indeed, Armenia’s simplified tax has a significant distorting and diminishing effect on VAT collections. Meanwhile, presumptive payments have a positive impact on VAT mobilization.
    Date: 2017–10
  7. By: Kevin Spiritus; Robin Boadway
    Abstract: We study the optimality of taxing capital income according to a Rate-of-Return Allowance proposed by the Mirrlees Review. In a mean-variance framework the optimal tax on risk-free returns is zero with constant returns to scale in private investment, but positive with decreasing returns to scale, and vice versa. The optimal tax rate on excess returns to risky assets is positive if the stochastic tax revenue is returned to the household by variable public good provision. If it is returned as a stochastic lump sum, the optimal tax on excess returns is irrelevant with only aggregate risk, and approaches 100 % if there is also idiosyncratic risk.
    Keywords: optimal capital taxation, rate of return allowance
    JEL: H21 H23 H24
    Date: 2017
  8. By: von Hagen, Dominik; Pönnighaus, Fabian Nicolas
    Abstract: We show that corporate taxation systems regarding foreign dividends and capital gains across 49 countries differ in many aspects, contradicting the requirements for capital ownership neutrality and indicating that ownership patterns are distorted. Consequently, a national tax policy maker may ask which taxation system improves the position of its multinational entreprises in bidding for foreign targets. To address this question, we develop a theoretical model on the impact of foreign dividends and capital gains taxation on cross-border M&A prices from the acquirer's perspective and theoretically compare different taxation systems. In a next step, we empirically validate our model in a regression analysis on a large cross-border M&A data set. Based on this analysis, we find that foreign dividends taxation rather than capital gains taxation impacts M&A prices. Finally, we provide tax policy suggestions.
    Keywords: International taxation,Repatriation taxes,Capital gains taxes,Lock-in effect,Multinational entities,Cross-border M&As
    JEL: F23 G34 H25 H26 H32 H73
    Date: 2017
  9. By: Benzoni, Luca (Federal Reserve Bank of Chicago); Goldstein, Robert S. (University of Minnesota)
    Abstract: This paper argues that tax liabilities explain a large fraction of observed short-maturity investment-grade (IG) spreads, but credit-event premia do not. First, we extend Duffie and Lando (2001) by permitting management to issue both debt and equity. Rather than defaulting, managers of IG firms who receive bad private signals conceal this information and service existing debt via new debt issuance. Consistent with empirical observation, this strategy implies that IG firms have virtually zero credit-event risk (at least until they become “fallen angels"). Second, we provide empirical evidence that short maturity IG spreads are mostly due to taxes. By properly accounting for the tax treatment of capital gains and interest income associated with bond investments, we reconcile this finding with the previous literature which argues against a significant tax component to spreads.
    Keywords: Credit risk; investment grade (IG); tax liability; liquidity risk
    JEL: H20 H23 H25 H81
    Date: 2015–11–18
  10. By: Felix Bierbrauer; Pierre C. Boyer
    Abstract: We present a conceptual framework for the analysis of politically feasible tax reforms. First, we prove a median voter theorem for monotonic reforms of non-linear tax systems. This yields a characterization of reforms that are preferred by a majority of individuals over the status quo and hence politically feasible. Second, we show that every Pareto-efficient tax systems is such that moving towards lower tax rates for below-median incomes and towards higher rates for above median incomes is politically feasible. Third, we develop a method for diagnosing whether a given tax system admits reforms that are welfare-improving and/ or politically feasible.
    Keywords: non-linear income taxation, tax reforms, political economy, welfare analysis
    JEL: C72 D72 D82 H21
    Date: 2017
  11. By: Guschanski, Alexander; Stockhammer, Engelbert
    Abstract: This paper analyses the emergence of current account imbalances as a result of the co-existence of trade flows and financial flows. The literature has tended to view these factors in isolation: Many post-Kaleckian models, as well as Net-saving approaches assume that financial flows will adjust to trade flows. Models focusing on financial crises feature a strong role for financial flows but ignore drivers of trade flows. Similarly, empirical analyses either ignore drivers of financial flows or insufficiently capture determinants of trade flows. The paper, first, proposes a simple macroeconomic framework of the current account which gives equal emphasis to trade flows, determined by price competitiveness, and financial flows, determined by asset prices. Second, we test a reduced form of the model for 28 OECD countries for the period 1971-2014. Our results indicate that cost competitiveness as well as asset prices play a role in the determination of current accounts, but asset prices have dominated in the last two decades.
    Keywords: current account, financial flows, competitiveness, asset prices,
    JEL: E12 F32 F41
    Date: 2017–10–28
  12. By: Zhao, Bo (Federal Reserve Bank of Boston); Wang, Wen (Rutgers University)
    Abstract: We develop a new measure of relative debt transparency by comparing the amount of state debt reported in the annual Census survey and the amount reported in the statistical section of the state Comprehensive Annual Financial Report (CAFR). GASB 44 requires states to start reporting their total debt in the CAFR statistical section in FY 2006. However, states are allowed to use accounting choices to exclude some dependent agencies’ debt, which contributes to a gap between the two data sources. The regression results suggest that the gap tends to increase when states face greater fiscal stress or less political competition. Such patterns are not found in the pre-GASB 44 period.
    Keywords: fiscal transparency; state debt; GASB; accounting choices; dependent agencies
    JEL: H74 H83
    Date: 2017–10–01
  13. By: Luigi Bernardi (Università di Pavia)
    Abstract: Since the 2016 electoral campaign, the President elect of the USA, Donald Trump, has presented a broad Plan for reducing taxes. This Plan centres on a reduction in Federal income tax rates for both individuals and businesses. The main underlying argument (in keeping with Republican tradition) in support of the Plan, is that taxes are harmful to economic growth. This short paper firstly presents a summary of the changes in tax structure suggested by the Plan. This is followed by a discussion of the three main critical and arguable points of the Plan (budget neutrality, distributional consequences and macroeconomic effects), also through a review of the most recent studies regarding this topic. The prevailing view is that the Plan might boost economic growth, but only at the price of a huge budget deficit, while it may well favour only the wealthiest taxpayers in the USA.
    Keywords: Taxation, Donald Trump’s tax plan
    JEL: H2 H20 H24 H25 H26
    Date: 2017–10
  14. By: Choi, Jung Ho (Stanford University)
    Abstract: I evaluate the role of accrual accounting in improving firms' production decisions and resource allocation across firms. I introduce both cash flow and accounting earnings as imperfect measures of performance into a general equilibrium model with heterogeneous firms under imperfect information. The model demonstrates firms' more informed decisions with an improved measure of performance lead to more resources being allocated to potentially high-productivity firms through the product and input markets. The estimated parameter values are consistent with accrual accounting improving managers' information about future productivity by providing a better measure of performance. The quantitative analysis suggests having accrual accounting information in addition to cash accounting information leads to a 0.7% increase in aggregate productivity and a 1.0% increase in aggregate output through resource allocation in the United States. The estimates are larger in China and India as benchmarks for developing countries: a 1.2%-2.5% increase in aggregate productivity and a 1.7%-3.8% increase in aggregate output. Overall, I demonstrate accrual accounting plays an important role in determining aggregate productivity through resource allocation.
    Date: 2017–07

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