nep-acc New Economics Papers
on Accounting and Auditing
Issue of 2018‒09‒10
six papers chosen by

  1. Competing for Capital: Auditing and Credibility in Financial Reporting By Boleslavsky, Raphael; Carlin, Bruce; Cotton, Christopher
  2. Cash-Flow Business Taxation Revisited: Bankruptcy, Risk Aversion and Asymmetric Information By Boadway, Robin; Sato, Motohiro; Tremblay, Jean-FranÃgois
  3. Globalization and Taxation: Theory and Evidence By Priya Ranjan; Giray Gozgor
  4. Taxation, Expenditures and the Irish Miracle By Paul Klein; Gustavo Ventura
  5. Financial Frictions and Export Dynamics in Large Devaluations By David Kohn; Fernando Leibovici; Michal Szkup
  6. Reviving American Entrepreneurship? Tax Reform and Business Dynamism By Sedlacek, Petr; Sterk, Vincent

  1. By: Boleslavsky, Raphael; Carlin, Bruce; Cotton, Christopher
    Abstract: When self-interested agents compete for scarce resources, they often exaggerate the promise of their activities. As such, principals must consider both the quality of each opportunity and each agent’s credibility. We show that principals are better off with less transparency because they gain access to better investments. This is due to a complementarity between the agents’ effort provision and their ability to exaggerate. As such, it is suboptimal for principals to prevent misreporting, even if doing so is costless. This helps explain why exaggeration is ubiquitous during allocation decisions: money management, analyst coverage, private equity fundraising, and venture capital investments.
    Keywords: Demand and Price Analysis, Financial Economics
    Date: 2017–01
  2. By: Boadway, Robin; Sato, Motohiro; Tremblay, Jean-FranÃgois
    Abstract: It is well-known that cash-flow business taxes with full loss-offset, and their present-value equivalents, are neutral with respect to firms’ investment decisions when firms are riskneutral and there are no distortions. We study the effects of cash-flow business taxation when there is bankruptcy risk, when firms are risk-averse, and when financial intermediaries face asymmetric information problems in financing heterogeneous firms. Cash-flow taxes remain neutral under bankruptcy risk alone, but can distort the entry and investment decisions of firms under both risk-aversion and asymmetric information. We characterize the nature of such distortions and show that cash-flow taxes can increase social welfare in this context. An ACE tax is equivalent to a cash-flow tax but is easier to implement under asymmetric information.
    Keywords: Demand and Price Analysis, Financial Economics
    Date: 2016–12
  3. By: Priya Ranjan (Department of Economics, University of California-Irvine); Giray Gozgor (Istanbul Medeniyet University)
    Abstract: We construct a theoretical model to capture the compensation and efficiency effects of globalization in a set up where the redistributive tax rate is chosen by the median voter. The model predicts that the two alternative modes of globalization- trade liberalization and financial openness- could potentially have different effects on taxation. We then provide some empirical evidence on the relationship between taxation and the alternative modes of globalization using a large cross-country panel dataset. We make a distinction between de jure and de facto measures of globalization and find a robust negative relationship between de jure measures financial openness and tax rates. There is no robust relationship between de facto measures of finanical openness and taxation. As well, the relationship between trade liberalization (both de jure and de facto measures) and tax rates is not robust and depends on the measures of taxation as well as the time period of analysis.
    Keywords: Trade liberalization; capital market openness; redistributive taxation; median voter
    JEL: F11 F21 H11
    Date: 2018–08
  4. By: Paul Klein (Stockholm University); Gustavo Ventura (Arizona State University)
    Abstract: We examine the role of fiscal policy in accounting for the remarkable rise of Ireland from one of Western Europe's poorest countries to one of its richest in just a few years. We focus on the importance of business tax reform and changes in the size of government, in conjunction with other factors, which we model as a residual rise in Total Factor Productivity (TFP). We conduct our analysis using a two-sector, small-open economy model where production requires tangible and intangible capital services, and where inflows of capital are limited by a collateral constraint. We find that the much discussed reductions of business taxes played a significant, but secondary, role in the Irish miracle. However, tax reform and other changes strongly reinforce each other. We also find that Ireland's openness to capital movements was crucial: under the same driving forces, a closed economy would have experienced a much slower and significantly smaller rise in GDP.
    Date: 2018
  5. By: David Kohn (Universidad Catolica de Chile); Fernando Leibovici (Federal Reserve Bank of St. Louis); Michal Szkup (The University of British Columbia)
    Abstract: We study the role of financial frictions and balance-sheet effects in account- ing for the dynamics of aggregate exports, output, and investment in large devaluations. We investigate a small open economy with heterogeneous firms and endogenous export decisions, in which firms face financing constraints and debt can be denominated in foreign units. We find that these channels can explain only a small fraction of the dynamics of exports observed in the data since financially-constrained exporters increase exports by reallocating sales across markets. We show analytically the role of this mechanism on exports adjustment and document its importance using plant-level data.
    Date: 2018
  6. By: Sedlacek, Petr; Sterk, Vincent
    Abstract: The 2017 Tax Cuts and Jobs Act slashed tax rates on business income and introduced immediate expensing of investments. Using a quantitative heterogeneous firms model, we investigate the long-run effects of such tax reforms on firm dynamics. We find that they can substantially increase business dynamism, potentially off-setting the large decline in the U.S. startup rate observed over recent decades. This result is driven by indirect equilibrium forces: the tax reform stimulates firm entry, leading to an increase in labor demand and wages, which in turn makes firm selection more stringent. Related to this is a large boost of the number of firms and of aggregate output, investment and employment.
    JEL: D21 E22 E24 H25
    Date: 2018–07

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