nep-acc New Economics Papers
on Accounting and Auditing
Issue of 2018‒05‒07
eight papers chosen by
Alexander Harin
Modern University for the Humanities

  1. Tax Enforcement and Tax Policy: Evidence on Taxpayer Responses to EITC Correspondence Audits By John Guyton; Kara Leibel; Dayanand S. Manoli; Ankur Patel; Mark Payne; Brenda Schafer
  2. Do US Firms Pay Less Tax than their European Peers? On Firm Characteristics, Profit Shifting Opportunities, and Tax Legislation as Determinants of Tax Differentials By Michael Overesch; Sabine Schenkelberg; Georg Wamser
  3. Corporate Taxes, Patent Shifting and Anti-Avoidance Rules: Empirical Evidence By Martina Baumann; Tobias Böhm; Bodo Knoll; Nadine Riedel
  4. The effects of official and unofficial information on tax compliance By Filomena Garcia; Luca David Opromolla; Andrea Vezzulli; Rafael Marques
  5. National Accounts for a Global Economy: the Case of Ireland By John Fitzgerald;
  6. Increasing tax transparency: Investor reactions to the country-by-country reporting requirement for EU financial institutions By Dutt, Verena K.; Ludwig, Christopher A.; Nicolay, Katharina; Vay, Heiko; Voget, Johannes
  7. How Should Capital Be Taxed? Theory and Evidence from Sweden By Bastani, Spencer; Waldenström, Daniel
  8. Wealth Taxation, Non-listed Firms, and the Risk of Entrepreneurial Investment By Schindler, Dirk

  1. By: John Guyton; Kara Leibel; Dayanand S. Manoli; Ankur Patel; Mark Payne; Brenda Schafer
    Abstract: Each year, the United States Internal Revenue Service (IRS) sends notices to selected taxpayers who claim Earned Income Tax credit (EITC) benefits to request additional documentation to verify those claims. This paper uses administrative tax data to examine the impacts of these correspondence audits on taxpayer behavior. The quasi-experimental research design compares randomly-selected audited taxpayers to taxpayers with similar risk scores who were not selected for a correspondence audit. The results indicate that, in the years following an audit, there are decreases in the likelihoods of claiming EITC benefits and filing returns. Taxpayers with self-employment income at the time of audit appear likely to increase wage employment following a correspondence audit, while taxpayers with wage income at the time of audit appear likely to decrease labor force participation following disallowance of EITC benefits. The results for wage earners indicate labor force participation elasticities of roughly 0.03.
    JEL: H24 J20
    Date: 2018–03
  2. By: Michael Overesch; Sabine Schenkelberg; Georg Wamser
    Abstract: Using pairs of similar US and European firms listed on the S&P500 or StoxxEurope600, we examine effective tax differentials between US multinational corporations (MNCs) and their European peers. We show that statutory tax rates and profit shifting opportunities are important determinants of effective tax rates. Our findings suggest substantially lower total tax payments of US MNCs after the 2017 US tax reform. Based on past reforms of Controlled Foreign Company (CFC) rules and of the principle of worldwide taxation, we confirm that international tax legislation affects effective tax expenses. We also provide evidence for heterogeneity in firm responses: MNCs with profit shifting opportunities benefit most from more-lenient CFC rules.
    Keywords: effective tax rate, tax avoidance, tax reform, CFC rule, international taxation, pair matching, difference-in-differences analysis
    JEL: H26 H32 F23
    Date: 2018
  3. By: Martina Baumann; Tobias Böhm; Bodo Knoll; Nadine Riedel
    Abstract: We empirically assess international corporate tax avoidance by strategic location of innovative output. The analysis draws on the universe of patent applications to the European Patent Office linked with data on multinational entities (MNEs) in Europe. Four findings emerge: Firstly, patent holdings are distorted towards low-tax countries. Secondly, patent location in low-tax countries is correlated with a geographic separation of R&D output and input. Thirdly, MNEs systematically sort high-value (low-value) patents to low-tax (high-tax) countries. Fourthly, the propensity to locate patent ownership in low-tax countries is significantly decreased if controlled foreign company rules are enacted in the MNE’s parent country. The tightening of transfer pricing legislations, in turn, exerts a weak negative effect on the location of patent ownership only.
    Keywords: corporate patents, patent taxation, profit shifting, anti-avoidance rules
    JEL: H30 H70 J50
    Date: 2018
  4. By: Filomena Garcia; Luca David Opromolla; Andrea Vezzulli; Rafael Marques
    Abstract: The administration of tax policy has shifted its focus from enforcement to complementary instru- ments aimed at creating a social norm of tax compliance. In this paper we provide an analysis of the effects of the dissemination of information regarding the past degree of tax evasion at the social level on the current individual tax compliance behavior. We build an experiment where, for given levels of audit probabilities, fines and tax rates, subjects have to declare their income after receiving either a communication of the official average tax evasion rate or a private message from a group of ran- domly matched peers about their tax behavior. We use the experimental data to estimate a dynamic econometric model of tax evasion. The econometric model extends the Allingham–Sandmo–Yitzhaki tax evasion model to include self-consistency and endogenous social interactions among taxpayers. We find four main results. First, tax compliance is very persistent. Second, the higher the official past tax evasion rate the higher the degree of persistence: evaders are more likely to evade again, and compli- ant individuals are more likely to comply again. Third, when all peers communicate to have evaded (complied) in the past, both evaders and compliant individuals are more likely to evade (comply). Fourth, while both treatments, and especially the unofficial information treatment, are associated, in the context of our experiment, with a significantly larger growth in evasion intensity, the aggregate effect depends on the characteristics of the population. In countries with inherently low levels of tax evasion, official information can have beneficial effects by consolidating the behavior of compliant in- dividuals. However, in countries with inherently high levels of tax evasion, official information can have detrimental effects by intensifying the behavior of evaders. In both cases, the impact of official information is magnified in the presence of strong peer effects.
    Keywords: Tax morale, Information, Tax evasion, Experiment, Peer Effects
    JEL: H26 D63 C24 C92 Z13
    Date: 2018–04
  5. By: John Fitzgerald (Department of Economics, Trinity College Dublin);
    Abstract: Globalisation is affecting the way economic activity is reflected in the national accounts. Intellectual property, which is now part of the capital stock, interacts with the choice of global firms as to their legal structure, producing different national accounting outcomes for individual countries. This is but one manifestation of the challenges that a global economy presents for national accounting. Using the example of Ireland, consideration is given to the data needed to meet the needs of users of national accounts. In particular, more information is required to separately identify all the activity of multinational enterprises and domestically owned firms. This paper suggests a set of satellite accounts for Ireland that would show how changes in the economy affect the economic welfare of Irish residents.
    Keywords: National Accounts, Globalisation, Intellectual Property, GNI
    JEL: C82 E62
    Date: 2018–05
  6. By: Dutt, Verena K.; Ludwig, Christopher A.; Nicolay, Katharina; Vay, Heiko; Voget, Johannes
    Abstract: We employ an event study methodology to investigate the stock price reaction around the day of the political decision to include a country-by-country reporting obligation for EU financial institutions. We do not find significant abnormal returns for the banks affected. Sample splits according to the effective tax rate and the degree of B2C orientation do not reveal a more pronounced negative investor response for banks engaging more strongly in tax avoidance or being potentially more concerned about reputational risks, respectively. We conclude that the implementation of a CbCR requirement for EU financial institutions did not trigger a noticeable investor response. Contrary prior findings regarding other public tax disclosure obligations might be driven by the distinct motivation of the rules and the way the information is presented. We contend that capital market reactions to an upcoming increase in tax transparency are not generalizable to other industries and settings, but that consideration must be given to the context and the exact design of the rule.
    Keywords: Tax Avoidance,Profit Shifting,Country-by-Country Reporting,Financial Institutions,Market Reaction
    JEL: H25 H26 G21 G28
    Date: 2018
  7. By: Bastani, Spencer; Waldenström, Daniel
    Abstract: This paper presents a comprehensive analysis of the role of capital taxation in advanced economies with a focus on the Swedish experience. We synthesize the existing theoretical literature, present facts about the capital stock and its distribution, review current capital tax practices and empirical findings regarding their effects on economic activity. The paper also examines the political feasibility of capital taxation by presenting results from a unique attitude survey targeted to a large representative sample of the Swedish population. Finally, we tie together our findings and discuss their implications for tax policy.
    Keywords: Capital taxation; corporate tax; Income inequality; Inheritance tax; optimal taxation; political economy; Preferences for Redistribution; Wealth Inequality; Wealth tax
    JEL: D31 H21 H24
    Date: 2018–04
  8. By: Schindler, Dirk (Dept. of Accounting, Auditing and Law, Norwegian School of Economics)
    Abstract: How to incorporate hard-to-value assets into the wealth tax? We analyze the effect of an optimal wealth tax on risk-taking behavior and welfare when investors do not only have the standard portfolio choice with a well-diversified market portfolio, but can alternatively choose to invest all their wealth into a non-diversifiable, indivisible project. The latter is interpreted as entrepreneurial investment into a small, nonlisted firm for which the actual value is hard to measure and non-verifiable. For such firms, real-world wealth tax systems base the wealth tax on deterministic book values. We show that this tax treatment does not distort the choice of projects if the tax is set optimally with an imputed interest rate on book values, actually larger than the risk-free market rate of return. The market equilibrium and a proportional tax on the market portfolio will ensure an efficient risk allocation between private and public consumption and across projects. Failing to apply an imputed inflation of book values, instead, gives rise to an implicit subsidy on entrepreneurial activity and distorts investment. Our findings also have implications for taxation of hard-to-value assets under capital-gains and inheritance taxation.
    Keywords: Wealth taxation; portfolio choice; non-listed firms; risk diversification; hard-to-value assets
    JEL: D14 G11 H21
    Date: 2018–04–27

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