nep-acc New Economics Papers
on Accounting and Auditing
Issue of 2018‒08‒20
ten papers chosen by

  1. The effects of official and unofficial information on tax compliance By Filomena Garcia; Andrea Vezzulli; Rafael Marques; Luca David Opromolla
  2. Politically feasible reforms of non-linear tax systems By Bierbrauer, Felix; Boyer, Pierre
  3. Tax Compliance and Enforcement By Joel Slemrod
  4. Corporate Income Tax as a Genuine own Resource By Fabien Candau; Jacques Le Cacheux
  5. FDI Return Differentials: An Explanation Based on Offshore Profit Shifting By Jennifer Koncz-Bruner; Dylan Rassier; Fatih Guvenen; Kim Ruhl
  6. Constitutional Bases of Public Finances in the Central and Eastern European Countries By Vértesy, László
  7. Modelling net carrying amount of shares for market consistent valuation of life insurance liabilities By Diana Dorobantu; Yahia Salhi; Pierre-Emmanuel Thérond
  8. Should There Be Lower Taxes on Patent Income? By Fabian Gaessler; Bronwyn H. Hall; Dietmar Harhoff
  9. Bad Sovereign or Bad Balance Sheets? Euro Interbank Market Fragmentation and Monetary Policy, 2011-2015 By Silvia Gabrieli; Claire Labonne
  10. Modelling of Information Spreading in the Population of Taxpayers: Evolutionary Approach By Kumacheva, Suriya Sh.; Gubar, Elena A.; Zhitkova, Ekaterina M.; Kurnosykh, Zlata; Skovorodina, Tatiana

  1. By: Filomena Garcia; Andrea Vezzulli; Rafael Marques; Luca David Opromolla
    Abstract: The administration of tax policy has shifted its focus from enforcement to complementary instruments 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 randomly 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 compliant 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 individuals. 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.
    JEL: C24 C92 D63 H26 Z13
    Date: 2018
  2. By: Bierbrauer, Felix; Boyer, Pierre
    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 system 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 politically feasible and/or welfare-improving.
    Keywords: Non-linear income taxation; optimal taxation; political economy; Tax Reforms
    JEL: C72 D72 D82 H21
    Date: 2018–07
  3. By: Joel Slemrod
    Abstract: This paper reviews recent economic research in tax compliance and enforcement. After briefly laying out the economics of tax evasion, it focuses on recent empirical contributions. It first discusses what methodologies and data have facilitated these contributions, and then presents critical summaries of what has been learned. It discusses a promising new development, the analysis of randomized controlled trials mostly delivered via letters from the tax authority, and then reviews recent research using various methods about the impact of the principal enforcement tax policy instruments: audits, information reporting, and remittance regimes. I also explore several understudied issues worthy of more research attention. The paper closes by outlining a normative framework based on the behavioral response elasticities now being credibly estimated that allows one to assess whether a given enforcement intervention is worth doing.
    JEL: H20 H26
    Date: 2018–07
  4. By: Fabien Candau (CATT - Centre d'Analyse Théorique et de Traitement des données économiques - UPPA - Université de Pau et des Pays de l'Adour); Jacques Le Cacheux (OFCE - Observatoire Français des Conjonctures économiques - Institut d'Études Politiques [IEP] - Paris - Fondation Nationale des Sciences Politiques [FNSP])
    Abstract: This article proposes an original review of the literature on tax competition, providing new evidence on tax competition concerning different types of capital (intangibles, industrial building, etc). We also present fiscal optimization of Multi-National Firms (MNFs) and document some case studies regarding the foregone tax revenue due to evasion. Amounts saved by firms are comparable to the contributions to the EU budget by countries like the UK, Ireland, the Netherlands or Luxembourg. We estimate the revenue losses for the national governments of EU15 due to corporate tax avoidance through profit shifting under three scenarios considering different levels of `CIT efficiency' to raise revenue for the year 2015. The 'intermediate' scenario predicts that the revenue losses for the EU governments due to corporate tax avoidance amount to approximately 98 billion euros. After this description of the failure of the current system of taxation, the defense of corporate income tax at the European level as a genuine own resource for the EU budget, this article analyzes alternative schemes such as the Common Consolidated Corporate Tax Base (CCCTB).
    Date: 2017–03
  5. By: Jennifer Koncz-Bruner (bureau of economic analysis); Dylan Rassier (Bureau of Economic Analysis); Fatih Guvenen (University of Minnesota); Kim Ruhl (Pennsylvania State University)
    Abstract: Abstract Beginning in the mid-1990s, U.S. multinational enterprises began to rapidly shift some profit that would otherwise be earned in the United States to their offshore affiliates located in low-tax jurisdictions. While much as been written about the implications of offshore profit shifting for the U.S. tax base, little is known about the effects of profit shifting on measurement in the domestic economy. Using confidential firm-level data from the Bureau of Economic Analysis, we develop a methodology to measure the profit shifted offshore by U.S. multinational enterprises. In 1990, profit shifting was less than one percent of U.S. private business sector value added. By 2008, profit shifting was about 2.5 percent of U.S. private business sector value added. Reattributing these profits back to the U.S. economy increases U.S. GDP. How does this affect measurement of the U.S economy? We show that accounting for the rapid increase in profit shifting adds to GDP and productivity growth rates for 1994–2008, partially mitigating the productivity slowdown found in official statistics. Most of the profit shifting lies in R&D intensive firms and industries. Our adjusted measure of GDP in R&D intensive industries is as much as 8 percent larger than that found in official statistics. Profit shifting matters for measurements beyond just headline GDP. For 2014, we find that adjusting for profit shifting roughly halves the U.S. trade deficit because adjusting for profit shifting doubles the trade surplus in services (our adjustment does not change the goods trade balance). The profit we reattribute to the United States is capital income, which adds 1.9 percentage points to the decline in the net labor share. The profit reattributed to the United States decreases the income earned by U.S. multinational enterprises on their foreign direct investments (and raises their domestic earnings). As a result, our adjustment reduces the rate of return on U.S. direct investment abroad from 7.3 percent to 3.0 percent, roughly eliminating the difference between the rate of return earned by U.S. multinationals on their foreign investments and the rate of return earned by foreign multinationals on their investments in the United States. In addition, the adjusted data show an even steeper decline in the US labor share in the last 20 years than what was previously documented in earlier work using unadjusted data. Finally, reattributing profits also has implications for the share of corporate profits earned by private business relative to C-corporations: it mitigates the decline in the share earned by the latter relative to what was found in unadjusted data.
    Date: 2018
  6. By: Vértesy, László
    Abstract: The paper analyses and compares some constitutional examples, especially in the 29 NISPAcee countries, how the states settle the bases of the economy and public finance in their constitutions or fundamental laws. The main hypothesis can be formulated as, is there any correlation between the constitutional provisions (or other relevant law sources) and the performance of the economy (GDP growth), sound and sustainable fiscal policy (budgeting, government debt, taxation, audit), furthermore monetary policy (price and exchange rate stability); also after the amendments can any changes be identified or not.
    Keywords: law and economics, constitutional economics, fiscal policy, monetary policy, economics
    JEL: E30 K10 N14
    Date: 2017
  7. By: Diana Dorobantu (SAF - Laboratoire de Sciences Actuarielle et Financière - UCBL - Université Claude Bernard Lyon 1 - Université de Lyon); Yahia Salhi (SAF - Laboratoire de Sciences Actuarielle et Financière - UCBL - Université Claude Bernard Lyon 1 - Université de Lyon); Pierre-Emmanuel Thérond (Galea & Associés, SAF - Laboratoire de Sciences Actuarielle et Financière - UCBL - Université Claude Bernard Lyon 1 - Université de Lyon)
    Abstract: The attractiveness of insurance saving products is driven, among others, by dividends payments to policyholders and participation in profits. These are mainly constrained by regulatory measures on profit-sharing on the basis of statutory accounts. Moreover, since both prudential and financial reporting regulation require market consistent best estimate measurement of insurance liabilities, cash-flows projection models have to be used for such a purpose in order to derive the underlying financial incomes. Such models are based on Monte-Carlo techniques. The latter should simulate future accounting profit and losses needed for profit-sharing mechanisms. In this paper we deal with impairment losses on equity securities for financial portfolios which rely on instrument-by-instrument assessment (when projection models consider groups of shares). Our motivation is to describe the joint distribution of market value and impairment provision of a book of equity securities, with regard to the French accounting rules for depreciation. The results we obtain enable to improve the ability of projection models to represent such an asymmetric mechanism. Formally, an impairment loss is recognized for an equity instrument if there has been a significant and prolonged decline in its market value below the carrying cost (acquisition value). Such constraints are formalized using an assumption on the dynamics of the equity, and leads to a complex option-like pay-off. Using this formulation, we propose analytical formulas for some quantitative measurements related the impairments losses of a book of financial equities. These are derived on a general framework and some tractable example are illustrated. We also investigate the operational implementation of these formulas and compare their computational time to a basic simulation approach.
    Keywords: Insurance,Best Estimate Technical Provision,Impairment Losses,Correlated Brownian Motions,Joint Density *
    Date: 2018–07–16
  8. By: Fabian Gaessler; Bronwyn H. Hall; Dietmar Harhoff
    Abstract: A “patent box” is a term for the application of a lower corporate tax rate to the income derived from the ownership of patents. This tax subsidy instrument has been introduced in a number of countries since 2000. Using comprehensive data on patent filings at the European Patent Office, including information on ownership transfers pre- and post-grant, we investigate the impact of the introduction of a patent box on international patent transfers, on the choice of ownership location, and on invention in the relevant country. We find that the impact on transfers is small but present, especially when the tax instrument contains a development condition and for high value patents (those most likely to have generated income), but that invention itself is not affected. This calls into question whether the patent box is an effective instrument for encouraging innovation in a country, rather than simply facilitating the shifting of corporate income to low tax jurisdictions.
    JEL: H25 H32 K34 O34
    Date: 2018–07
  9. By: Silvia Gabrieli; Claire Labonne
    Abstract: We measure the relative role of sovereign-dependence risk and balance sheet (credit) risk in euro area interbank market fragmentation from 2011 to 2015. We combine bank-to-bank loan data with detailed supervisory information on banks’ cross-border and cross-sector exposures. We study the impact of the credit risk on banks’ balance sheets on their access to, and the price paid for, interbank liquidity, controlling for sovereign-dependence risk and lenders’ liquidity shocks. We find that (i) high non-performing loan ratios on the GIIPS portfolio hinder banks’ access to the interbank market throughout the sample period; (ii) large sovereign bond holdings are priced in interbank rates from mid-2011 until the announcement of the OMT; (iii) the OMT was successful in closing this channel of cross-border shock transmission; it reduced sovereigndependence and balance sheet fragmentation alike.
    Keywords: Interbank market, credit risk, fragmentation, sovereign risk, country risk, credit rationing, market discipline
    JEL: G01 E43 E58 G15 G21
    Date: 2018
  10. By: Kumacheva, Suriya Sh.; Gubar, Elena A.; Zhitkova, Ekaterina M.; Kurnosykh, Zlata; Skovorodina, Tatiana
    Abstract: Collected papers presented on the Tenth International Conference Game Theory and Management / Editors Leon A. Petrosyan, Nikolay A. Zenkevich. Ó SPb.: Saint Petersburg State University, 2017. Ó 404 p.
    Keywords: tax audit, tax evasion, total tax revenue, information spreading, evolutionary game on networks,
    Date: 2017

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