nep-acc New Economics Papers
on Accounting and Auditing
Issue of 2018‒08‒13
eleven papers chosen by

  1. Measuring the Capital Shortfall of Large U.S. Banks By Eric Jondeau; Amir Khalilzadeh
  2. Tax expenditure and the treatment of tax incentives for investment By Redonda, Agustin; Diaz de Sarralde, Santiago; Hallerberg, Mark; Johnson, Lise; Melamud, Ariel; Rozemberg, Ricardo; Schwab, Jakob; von Haldenwang, Christian
  3. Loss Aversion, Transaction Costs, or Audit Trigger? Learning about Corporate Tax Compliance from a Policy Experiment with Withholding Regime By Carrillo, Paul; Emran, M. Shahe
  4. The Tax-Efficient Use of Debt in Multinational Corporations By Jarle Møen; Dirk Schindler; Guttorm Schjelderup; Georg Wamser
  5. Elasticidad del ingreso corporativo gravable en Colombia By Ligia Alba Melo-Becerra; Héctor Zárate-Solano; Andrés Camilo Gómez-Molina
  6. Fiscal Fraud- A Difficult Reality to Quantify By Istrate, Florentina
  7. Effect of corporate governance on cost of equity before and after international financial reporting standard implementation By Chandra, Situmeang; Erlina, Erlina; Maksum, Azhar; Supriana, Tavi
  8. Tax incidence and fiscal systems: some problems on tax compared history in XIX and XX centuries By José Alves
  9. Progressive Taxation of Extractive Resources as Second-Best Optimal Policy By Jean-François Wen
  10. Reallocation of Tangible Assets and Productivity By UESUGI Iichiro; HOSONO Kaoru; MIYAKAWA Daisuke; ONO Arito; UCHIDA Hirofumi
  11. Assessing the impact of Basel III on bank behaviour: A micro-founded approach By Jérémy Pépy; Benjamin Williams

  1. By: Eric Jondeau (University of Lausanne and Swiss Finance Institute); Amir Khalilzadeh (University of Lausanne)
    Abstract: We develop a new methodology to measure the capital shortfall of commercial banks during a market downturn. The measure, which we call stressed expected loss (SEL), adopts the structure of the individual bank's balance sheet. SEL is defined as the difference between the market value of assets in the stress scenario and the book value of the deposits and short-term debt of the bank. We estimate the probability of default and the SEL of the 31 largest commercial banks in the U.S. between 1996 and 2016. The probability of default in a market downturn was as high as 25%, on average, between 2008 and 2012. It is now much lower and close to 5%, on average. SEL was very high (between $250 and $350 billion) during the subprime crisis. In 2016, it is close to $200 billion.
    Keywords: Systemic Risk, Capital Shortfall, Stress Test, Multi-factor Model
    JEL: C32 G01 G21 G28 G32
    Date: 2018–02
  2. By: Redonda, Agustin; Diaz de Sarralde, Santiago; Hallerberg, Mark; Johnson, Lise; Melamud, Ariel; Rozemberg, Ricardo; Schwab, Jakob; von Haldenwang, Christian
    Abstract: Governments use tax expenditures to boost investment, innovation and employment. However, these schemes are largely opaque, costly and often ineffective in reaching their stated goals. They also frequently trigger unwanted side effects. In order to improve the performance of these tools, the authors present three concrete policy proposals: First, governments should increase transparency on tax benefits. G20 members should take the lead on this with frequent and comprehensive tax expenditure reports. Second, G20 governments should improve the design of tax incentives with the aim of minimizing the generation of windfall profits and negative spillover effects within and across (in particular, on poorer) countries. Third, governments should phase out tax expenditures that are environmentally harmful, including tax incentives for fossil fuels and other schemes that promote an unsustainable use of natural resources.
    Keywords: tax expenditure,tax competition,investment,fossil fuel subsidies
    JEL: H2 H87 N4
    Date: 2018
  3. By: Carrillo, Paul; Emran, M. Shahe
    Abstract: We analyze firm's tax choices facing a withholding and enforcement regime with a focus on three salient mechanisms of bunching: (i) transaction costs, (ii) withholding threshold as a reference point for taxpayer that creates a kink due to loss aversion, and (iii) withholding threshold as a reference point for audit (audit trigger model). The transaction costs model predicts that none of the firms that bunch at the withholding threshold would declare higher taxes when withholding rate is increased, as was the case in Ecuador in 2007. Evidence from a triple-difference research design shows the opposite. A prospect theoretic model with the power value function of Kahneman and Tversky (1979) does not generate bunching at the withholding threshold. While linear prospect theory (LPT) can generate bunching under certain conditions, it also yields testable predictions that are not consistent with the behavior of a significant proportion of firms. Under the LPT, given an enforcement and withholding regime, if a firm bunches in one year it should also bunch in all the following years, or if it unbunches in a following year, it should declare taxes less than the withheld amount. The evidence from panel data on the universe of all corporations in Ecuador shows very low persistence in bunching: conditional on bunching at least once, only 3-4 percent firms bunch every year before changes in the withholding rate, and among the firms that unbunch 35-40 percent declare taxes more than the withheld amount, thus contradicting the LPT model for a substantial proportion of the firms. Using the Sasabuchi t test as developed by Lind and Mehlum (2010), we find that the relation between probability of bunching and assets of a firm is inverted-U which is consistent with the audit trigger model. The evidence suggests that the behavior of the firms cannot be captured by a single model. The strength of enforcement is important in determining bunching in an LPT model which suggests cross-country differences in the role played by loss aversion in bunching of taxpayers at policy thresholds.
    Keywords: Loss Aversion, Reference Dependence, Transaction Costs, Audit Trigger, Bunching, Withholding, Firms, Profit Tax, Tax Evasion, Ecuador
    JEL: H2 H25 H26 O1
    Date: 2018–06–16
  4. By: Jarle Møen; Dirk Schindler; Guttorm Schjelderup; Georg Wamser
    Abstract: Some multinationals use the parent company as a lender to the group, whereas others set up an internal bank in a low tax jurisdiction. This paper discusses the link between capital structure choices and tax planning motives in multinational groups. We model the trade-off between the use of external debt, parental debt and an internal bank. We test the theory model using data on the universe of German multinationals. The empirical analysis largely supports our model in that: (i) smaller firms often rely on parental debt financing; (ii) larger multinationals are more likely to use internal banks; (iii) parental debt and external debt are substitutes and the mix depends on the relative cost of raising capital through the parent and the affiliates; (iv) both parental debt and external debt increase when the tax rate increases, all else equal.
    Keywords: corporate taxation, multinationals, capital structure, international debt-shifting, parental debt
    JEL: H25 G32 F23
    Date: 2018
  5. By: Ligia Alba Melo-Becerra (Banco de la República de Colombia); Héctor Zárate-Solano (Banco de la República de Colombia); Andrés Camilo Gómez-Molina
    Abstract: En este documento se estima la elasticidad de la utilidad de las empresas con respecto a la tasa efectiva marginal de tributación neta, en un contexto de frecuentes reformas tributarias. Esta medición es relevante, dado el amplio margen de maniobra que tienen las firmas para responder ante cambios en los impuestos, y por la importancia del impuesto de renta corporativo sobre la actividad económica y el balance fiscal. El análisis se realiza para las reformas tributarias implementadas en Colombia, durante el periodo 2008-2014, utilizando Mínimos Cuadrados en dos etapas y la Regresión por Cuantiles Edógena con Datos Panel. Los cálculos de las tasas efectivas marginales de tributación muestran que la carga tributaria que recae sobre las empresas es inferior a la tasa estatutaria definida por la ley, debido a las deducciones establecidas en el estatuto tributario. Por su parte, los resultados de las elasticidades señalan que las respuestas de las firmas dependen de la reforma evaluada y de las características de las empresas. **** In this paper, we estimate the elasticity of profits before taxes with respect to the net-off marginal effective tax rate in a context of frequent tax reforms. This measurement is relevant, given the wide margin of maneuver that firms have to respond to changes in taxes, and the importance of corporate income taxes on economic activity and the fiscal balance. The analysis is carried out for the tax reforms implemented in Colombia, during the period 2008-2014, using Least Squares in two stages and Endogenous Quantile Regression for Panel Data. The marginal effective tax rates used in the estimations shows that the corporate tax burden of firms is lower than the statutory tax rate defined by law, due to tax deductions and tax exemptions established by Law. In turn, the results of the elasticities show that the firms' responses depend on the specific tax reform and on the companies' characteristics. Classification JEL: H21, H25, H32, C20, C26
    Keywords: Impuestos corporativos, elasticidad del ingreso gravable, Colombia, regresión por cuantiles con datos panel, Corporate tax, elasticity of taxable income, Colombia, quantile regression with panel data,
    Date: 2018–07
  6. By: Istrate, Florentina
    Abstract: The specialized economic literature contains numerous reference works in the field of taxation, but those dedicated exclusively to tax evasion are not very numerous. Due to the increasing necessity of the decryption of this phenomenon, given the ingenuity of its manifestations, , I consider it a good opportunity to comment it in the light of the distortions it induces upon the functioning of the competitive market economy circuit. From this perspective, efficient combating of the phenomenon must be a priority both at the level of the national governmental authorities and at the level of the international bodies charged with the detection and sanctioning of financial-tax frauds. As an economic and social phenomenon with the most ingenious manifestations, tax evasion has particularly damaging consequences both at the macroeconomic level and at the level of the individual.
    Keywords: tax evasion; creative accounting; fiscal fraud; corruption; economic; financial crime
    JEL: M1 M4
    Date: 2018–03
  7. By: Chandra, Situmeang; Erlina, Erlina; Maksum, Azhar; Supriana, Tavi
    Abstract: The ability to compete between companies at the time of intercompany production efficiency is no longer a differentiator, the determinant of competitiveness includes the aspect of funding to be one of the determinants of competitiveness. One of the company's competitiveness capabilities is determined by the capital cost or the discount rate used in evaluating a project. The higher the cost of capital will be the lower the competitiveness of the company. There are many factors that determine the cost of a company's capital, but this research focuses only on the aspects of Corporate Governance (CG). Investors will assume that the risk in companies that have good CG quality will be smaller than companies that do not have good CG quality. On the other hand, IFRS implementation has a variety of purposes including improving the implementation of CG in a company, so it is theoretically suspected that IFRS implementation will increase CG's influence on CoE. The approach used is to study the capability of the linear regression model formed and to conduct a comparative analysis among regression models established by data from manufacturing companies listed on the Indonesia Stock Exchange during 2007-2011 as data prior to IFRS implementation and 2012-2015 for data after IFRS implementation. Based on the results of data processing obtained evidence that Corporate Governance negatively affect the Cost of Equity (CoE). This contradicts the theory because the better the CG value of a firm the CoE will be to decrease. When compared to the period before and after IFRS implementation, there is no evidence of a relationship between CG and CoE.
    Keywords: Corporate Governance; Cost of Equity; IFRS
    JEL: D53 E44 F34 H63
    Date: 2018–02
  8. By: José Alves
    Abstract: The study of tax systems have been deeply discussed regarding the early modern period. However, there is a lack of comparative historical studies about the last two centuries in what respect the tax state developments. In our article we analyse the tax history of the last two hundred years for five countries, intending to analyse the mechanisms levied by the different governments to efficiently collect more revenues and the power to coerce several economic agents as well as we reflect about the power of those agents to condition the tax political policies
    Keywords: Tax history; Tax developments; Fiscal systems; State building
    Date: 2018–07
  9. By: Jean-François Wen
    Abstract: The paper provides a critical review of the literature on the concept of progressivity in the taxation of petroleum and mineral resources and offers a fresh perspective on its purpose and measurement. Regressive taxes, such as royalties, exist to satisfy policy objectives other than revenue maximization, such as achieving early revenues, while rent-based or profit-sensitive fiscal instruments must be designed with progressive marginal rates to maximize government revenues. Hence, the emphasis should be placed on tax rate progression of the direct taxation of profit or rent, rather than progressivity in the overall government take. However, as regressive taxes, by their very nature, tend to be distortionary, the optimal degree of progression in the rent- or profit-tax rates must take these distortions into account. The central ideas are illustrated with a simple analytical model in which a second-best optimal tax rate schedule on profit is characterized in the presence of the tax distortions caused by the regressive taxes. Some practical implications of the analysis are discussed.
    Keywords: Progressive taxation;Effective tax rate;Optimal taxation;Minerals;Petroleum;rent tax, average effective tax rate, second-best optimality, Business Taxes and Subsidies, General
    Date: 2018–06–13
  10. By: UESUGI Iichiro; HOSONO Kaoru; MIYAKAWA Daisuke; ONO Arito; UCHIDA Hirofumi
    Abstract: We study the reallocation of land and other tangible assets across firms and examine its relationship with productivity. Focusing on Japanese firms during the period 1980-2014, which includes massive asset price fluctuations, we find the following. First, there exists no obvious cyclicality in the extent of land and other tangible asset reallocation. Instead, the reallocation of land has been sluggish for more than 20 years since the burst of the asset price bubble. Second, reallocation of land and non-land tangible assets is efficiency-reducing rather than efficiency-enhancing in that firms with high total factor productivity (TFP) reduced their holdings of these assets more than low TFP firms. Third, the relationship between reallocation and productivity has changed over time. Even though the reallocation of land was efficiency-enhancing around the end of the 1980s, it turned efficiency-reducing afterward.
    Date: 2018–07
  11. By: Jérémy Pépy (CERDI - Centre d'Études et de Recherches sur le Développement International - Clermont Auvergne - UCA - Université Clermont Auvergne - CNRS - Centre National de la Recherche Scientifique); Benjamin Williams (CRCGM - Centre de Recherche Clermontois en Gestion et Management - Clermont Auvergne - École Supérieure de Commerce (ESC) - Clermont-Ferrand - UCA - Université Clermont Auvergne)
    Abstract: The failures of the banking sector to promote sustainable lending and to build strong capital and liquidity buffers prior to the 2008 Financial Crisis addressed the rationale for implementing the banking regulatory regime Basel III. In this paper, we question the fundamental role of this new regulatory regime in promoting bank lending and ensuring the adequate funding structure of the banking sector regarding the introduction of unprecedented international liquidity standards notably. We build a theoretical model of bank behaviour under a regulatory regime à la Basel III which points to two major results. First, Regulatory Authorities need to define the objectives and thus, the underlying tools implemented in order to achieve the optimum-optimurum. Second, we show that the competitive structure of the markets the bank faces is a determinant to take into account for achieving this optimum-optimurum.
    Keywords: Basel III, Regulation, Bank behaviour, Regulatory distortions
    Date: 2018–07–19

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