nep-acc New Economics Papers
on Accounting and Auditing
Issue of 2018‒03‒26
ten papers chosen by

  1. The reform of the tax system in Swaziland By Ayoki, Milton
  2. Is the Haig-Simons Standard Dead? The Uneasy Case for a Comprehensive Income Tax By James Alm
  3. Twin Deficits Revisited: a role for fiscal institutions? By António Afonso; Florence Huart; João Tovar Jalles; Piotr Stanek
  4. The Information Content of Sarbanes-Oxley in Predicting Security Breaches By J. Christopher Westland
  5. A glimpse of positive accounting theory (PAT) By Santoso, Muhammad Rifky; Sebayang, Minda Muliana br
  6. The effects of tax-deductible reserves on investment incentives By Kari, Seppo
  7. Contribution Linkage and Role of Village Apparatus in Village Finance Management to Achieve Accountability of Village Revenue Expenditure Budget By Karmawan, Mr; Yanuar, Dony
  8. How do small firms respond to tax schedule discontinuities? Evidence from South African tax registers By Boonzaaier, Wian; Harju, Jarkko; Matikka, Tuomas; Pirttilä, Jukka
  9. Profit Shifting and Investment Effects: The Implications of Zero-Taxable Profits By Marko Köthenbürger; Mohammed Mardan; Michael Stimmelmayr
  10. Political Alignment, Attitudes Toward Government and Tax Evasion By Julie Berry Cullen; Nicholas Turner; Ebonya Washington

  1. By: Ayoki, Milton
    Abstract: This paper documents the tax reforms implemented in Swaziland since the 1990s and how they have contributed to revenue collection. Reforms have had a major impact on collection of indirect taxes (especially VAT) but no clear impact on receipts of direct taxes and trade taxes. Despite efforts to broaden the tax base, tax collection is still heavily concentrated on very few sources, with SACU receipts alone accounting for more than one-half of total revenue. Growth in revenue collections from direct taxes on income and profits, and indirect taxes on goods and services remain substantially too low to compensate for the loss in import tariff revenues.
    Keywords: Tax Reform, Tax System, Tax Administration and Policy, Swaziland
    JEL: H20 H24 H27
    Date: 2017–11–30
  2. By: James Alm (Department of Economics, Tulane University)
    Abstract: Discussions of the “ideal†form of individual income taxation have largely been based on some variant of the standard suggested by Haig (1921) and Simons (1938). This “Haig-Simons†(H-S) standard argues that an ideal income tax should be imposed on “comprehensive income†, and the H-S standard has been used to justify the frequently heard call for a “Broad-based, Low-rate†tax reform strategy. However, I argue in this paper that a truly comprehensive individual income tax has in fact never been fully applied, either in the design of a new income tax or in the reform of an existing one. Indeed, my first conclusion is that the H-S standard is effectively “dead†in terms of its actual real-world relevance to income tax design or reform. This conclusion obviously does not demonstrate that the H-S standard should be discarded as the basis for an ideal individual income tax, including any reform of the income tax. However, my second conclusion is that the “death†of the H-S standard is entirely appropriate; that is, there are compelling arguments that can be made for an individual income tax that is in fact imposed on an even narrower tax base, with even more extensive use of the many exclusions, adjustments, deductions, and exemptions that currently populate most all income taxes. Even so, my final conclusion is that there is no one-size-fits-all income tax standard; that is, any standard must consider the specifics of the current environment, especially the underlying goals of taxation.
    Keywords: Haig-Simons standard; comprehensive income; broad-based, low-rate taxation; tax reform; optimal taxation.
    JEL: H2 H7
    Date: 2018–03
  3. By: António Afonso; Florence Huart; João Tovar Jalles; Piotr Stanek
    Abstract: We revisit the twin deficit relationship for a sample of 193 countries over the period 1980-2016, using a panel fixed effect (within-group) estimator, bias-corrected least-squares dummy variable, system GMM, and common correlated effects pooled estimation procedures. The analysis accounts also for the existence of fiscal rules in place, their features, and their interaction with the budget balance. In the absence of fiscal rules, the twin deficit hypothesis is confirmed. The size of the estimated coefficient on the budget balance is between 0.68 and 0.79. However, the existence of fiscal rules strongly reduces the effect of budget balance on the current account balance (the coefficient is reduced to 0.1). In fact, the twin deficits relationship does not hold with some specific kinds of rules: debt rules, rules with monitoring of compliance, as well as budget balance rules and debt rules in emerging market economies and lowest income countries, and in the post-crisis period.
    Keywords: current account, fiscal balance, fiscal rules, panel data, system GMM
    JEL: E62 F32 F41 H87
    Date: 2018–03
  4. By: J. Christopher Westland
    Abstract: We investigated publicly reported security breaches of internal controls in corporate systems to determine whether SOX assessments are information bearing with respect to breaches which can lead to materially significant losses and misstatements. SOX Section 404 adverse decisions on effectiveness of controls occurred in 100% of credit card data breaches and around 33% of insider breaches. SOX 404 audits provided a contrarian "effective" control decisions on 88% of situations where there was a control breach concerning a portable device. We found that management and SOX 404 auditors do not general agree on the underlying internal control situation at any time; instead the SOX 404 team was likely to discover material weaknesses and "educate" management and internal audit teams about the importance of these control weaknesses. SOX attestations were poor at identifying control weaknesses from unintended disclosures, physical losses, hacking and malware. Hazard and occupancy models showed that both SOX 302 and 404 section audits provided information on the frequency of breaches, with SOX 404 being three times as informative as section 302 reports. The hazard model found an expected 2.88% reduction in breaches when SOX 302 controls are effective; management "material weakness' attestations provided no information in this structural model, whereas there would be around a 1% increase in breach occurrence when there are significant deficiencies. SOX 404 attestations were the most informative, and a negative SOX 404 attestation is projected to increase the frequency of breaches by around 8.5%.
    Date: 2018–02
  5. By: Santoso, Muhammad Rifky; Sebayang, Minda Muliana br
    Abstract: Positive accounting theory (PAT) has been more developed than normative accounting theory in this era. The development of PAT research has discussed about what factors influenced management to report earnings. By using literature reviews, there are many researches in discussing the external factors to influence management to report earnings, such as bonuses, the debt equity ratio, political costs, and good governance. The other researches have discussed the association between earnings and stock prices. There are still few discussions about the selfmotivation of the directors or managers why choose a certain accounting method. The difference of environment, types of industry, and timing of financial statement reporting can be a further research. By using theories introduced by Popper, Kuhn, and Lakatos, PAT has elements in these three theories; however, PAT has not been categorized as science.
    Keywords: Earning; normative; bonus; management
    JEL: M41
    Date: 2017
  6. By: Kari, Seppo
    Abstract: This paper investigates how tax-deductible reserves affect the incentive to invest. We consider two different variants: a periodization reserve (PER), which allows the firm to defer tax payments for a certain number of years, and an investment reserve (IVR), which postpones tax payments but has the particular goal of allowing the firm to finance investments from untaxed funds. The latter is assumed to include a penalty levied if the reserve is not used to cover investment. We find that PER lowers the effective tax rate and produces a smaller reduction in the firm’s cost of capital. The impacts of IVR are more complex. With a low penalty, its effects equal those of PER. In both cases they could be mimicked more easily by a reduction in statutory tax rate. However, with a high penalty and high ceiling for allocations, IVR equals a neutral cash flow tax. Similarly, if the firm distributes maximum dividends (binding dividend constraint), both PER and IVR are investment neutral. These neutrality results only concern investment financed from retained profits.
    Keywords: corporate taxation, international corporate taxation, investment incentives, Business regulation and international economics, H25, H32,
    Date: 2017
  7. By: Karmawan, Mr; Yanuar, Dony
    Abstract: This Empirical Research aims to look at the contribution and role of Management Village Finance by village apparatus, overall activities including planning, Implementation, administration, reporting and accountability of village finances and Funds Villages sourced from the State Revenue and Expenditure Budget are designated For villages transferred through the District / City Revenue and Expenditure Budget And used to finance the administration, development, Community development, and community empowerment based on Ministerial Regulation Internal Affair of Ministry Number 113 of 2014. The results of this study are expected to contribute to the device Village in district of West Bangka Regency about Strategies to create financial statements and manage a good budget, deliver Training on information technology for village apparatus, training documenting ways and orderly administration and ways of making numbers/codes and codes Documents / archives and others. The population in this study is all of the villages in Mentok and Parit Tiga District of West Bangka Regency while the sample in this study is geographically located villages in Mentok and Parit Tiga Districts of West Bangka Regency. This study uses Primary Data in the form of interviews and Secondary Data taken directly from Object of Research with statistics test. Descriptive and Quantitative Test Correlation (relationship) with Pearson Correlation between research variable.
    Keywords: Contributions, Role of Village Apparatus, Village Finance Management, Accountability, Village of Revenue and Expenditure Budget
    JEL: M4 R51
    Date: 2018–01–30
  8. By: Boonzaaier, Wian; Harju, Jarkko; Matikka, Tuomas; Pirttilä, Jukka
    Abstract: We study the responsiveness of small and medium-sized firms to corporate income taxes using population-wide administrative data from South Africa. We find sizable bunching of firms at the corporate income thresholds where the corporate tax rate increases, implying active responses to corporate income taxes. The observed bunching is very sharp, and reacts immediately to changes in the location of the kink points. These observations suggest that a sizable part of the response is driven by reporting responses rather than real economic behavior. We find indicative evidence that reporting behavior is linked with underreporting of sales and legal tax planning activities.
    Keywords: corporate taxation, small firms, emerging economies, bunching, Social security, taxation and inequality, H21, H25, H32, O12,
    Date: 2017
  9. By: Marko Köthenbürger; Mohammed Mardan; Michael Stimmelmayr
    Abstract: Recent empirical research documents a tendency of affiliates of multinational enterprises to bunch around zero reported profit. Setting up a model that allows for profitable and loss-making affiliates of multinationals, we show that profit shifting to a low-tax country as well as a loss-related, inverted-type of transfer pricing from the low-tax to the high-tax country induces bunching. Such bunching promotes investment incentives in the low-tax as well as the high-tax country. In equilibrium, affiliates might over-invest and the bunching-related investment effects generate a tendency for too high profit taxes in equilibrium. The finding contrasts existing literature where transfer pricing incentives are insulated from investment incentives and transfer pricing induces inefficiently low taxes.
    Keywords: tax competition, profit shifting, corporate losses, bunching, investment
    JEL: H25 D21 H87
    Date: 2018
  10. By: Julie Berry Cullen; Nicholas Turner; Ebonya Washington
    Abstract: We ask whether attitudes toward government play a causal role in the evasion of U.S. personal income taxes. We first use individual-level survey data to demonstrate a link between sharing the party of the president and trust in the administration generally and opinions on taxation and spending policy, more specifically. Next, we move to the county level, and measure tax behavior as elections, decided by the voting behavior in swing-states, push voters in partisan counties into and out of alignment with the party of the president. Using IRS data, we find that reported taxable income increases as a county moves into alignment, with the increases concentrated in income sources that are easily evaded, due to lack of third-party reporting. Corroborating the view that evasion falls, potentially suspect EITC claims and audit rates also fall. Our results provide real-world evidence that a positive outlook on government lowers tax evasion.
    Keywords: tax evasion, tax morale
    JEL: D72 H24 H26 H30
    Date: 2018

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