nep-acc New Economics Papers
on Accounting and Auditing
Issue of 2018‒10‒15
four papers chosen by

  1. Current Account Balance in Emerging Asia By Kivanç Halil Ariç; Siok Kun Sek; Miguel Rocha de Sousa
  2. The Consequences of the TCJA's International Provisions: Lessons from Existing Research By Dhammika Dharmapala
  3. The paradox of tax competition: Effective corporate tax rates as a determinant of foreign direct investment in a modified neo-Kaleckian model By Woodgate, Ryan
  4. The Emergence of A Parallel World: The Misperception Problem for Bank Balance Sheet Risk and Lending Behavior By Inoue, Hitoshi; Nakashima, Kiyotaka; Takahashi, Koji

  1. By: Kivanç Halil Ariç (Sivas Cumhuriyet University, Faculty of Economics and Administrative Sciences, Department of International Trade and Logistics, Sivas, Turkey); Siok Kun Sek (School of Mathematical Sciences, Universiti Sains Malaysia 11800 Minden, Penang, Malaysia); Miguel Rocha de Sousa (Department of Economics; Center for Research in Advanced Studies in Management and Economics (CEFAGE); Research Center in Political Science (CICP) Universidade de Évora, Portugal)
    Abstract: The current account balance is an important indicator which reveals information on a country’s economic situation such as investments, capital flows, and indebtedness. The main purpose of this study is to examine the current account balance conditions in emerging Asian countries. In this respect, the long-run and causality relationship between current account balance, economic growth, government expenditure, real interest rates, and foreign direct investment was examined. The panel data analysis was applied using the data dated 1986 to 2015. Our results revealed a causal effect from economic growth and government expenditure to current account balance mainly dependent on saving tendency.
    Keywords: Asia; Current Account Balance; Economic growth; Emerging Asia; FDI; Panel Data Cointegration Analysis; Real Interest rates.
    JEL: C23 C33 E13 F32 F43 F47 P52
    Date: 2018
  2. By: Dhammika Dharmapala
    Abstract: This paper discusses the potential consequences of the international tax provisions of the recent Tax Cut and Jobs Act (TCJA), drawing on existing research. The TCJA’s dividend exemption provision is expected to eliminate distortions to the amount and timing of dividend repatriations. However, the efficiency gains from increased repatriations – which are primarily expected to increase shareholder payout – are likely to be modest. The paper uses the observed behavior of firms during the repatriation tax holiday implemented in 2005 to infer the relative magnitudes of the burdens created by the repatriation tax under the old (pre-TCJA) regime and by the TCJA’s new “Global Intangible Low-Taxed Income” (GILTI) tax. It concludes that the TCJA increases the tax burden on US residence for many, and perhaps most, US MNCs. The paper also argues that the GILTI and “Foreign-Derived Intangible Income” (FDII) provisions are likely to create substantial distortions to the ownership of assets, both in the US and around the world. Overall, the scholarly evidence implies that the international provisions of the TCJA can reasonably be expected to create potentially large efficiency losses.
    Keywords: international taxation, tax reform, tax cut and jobs act, GILTI, FDII
    JEL: H25
    Date: 2018
  3. By: Woodgate, Ryan
    Abstract: After demonstrating the empirical relevance of tax competition effects across OECD countries, we incorporate such effects into a Kaleckian model. Corporate tax rates are seen as affecting investment by the effect on the location of multinational enterprise (MNE) investment, not on the total size of worldwide MNE investment. Hence, unlike the neoclassical approach, in our analysis investment is not driven by tax rates affecting the cost of capital, which is objectionable from a post-Keynesian perspective. With this locational qualification in place, we augment a traditional neo-Kaleckian model with the effects of MNE investment and determine under what conditions a country's policymakers can stimulate demand by raising corporate tax rates (via the usual Kaleckian redistribution channel) or lowering tax rates (via the tax competition FDI channel). The result of this exercise shows that our model predicts countries of small economic size will be more likely to engage in tax competition. Moreover, if the usual Keynesian stability condition holds, we can show that the effect of higher corporate tax rates on demand is much more likely to be negative than positive. To see how an interdependent world system of corporate tax rates may interact and develop over time, we use a procedural-based simulation approach using the conditions derived from our modified neo-Kaleckian model to inform the behavioural rules of our simulated policymakers. The simulations show a propensity of corporate tax rates around the world to convergence and to fall in systems with realistic parameter ranges, offering an explanation for the empirical phenomenon of the so-called "race to the bottom" in corporate tax rates. The "bottom" is shown within our model to be a bad equilibrium, from which tax coordination is proposed as a means of escape.
    Keywords: tax competition,Kalecki,multinational enterprises,race to the bottom,simulation,foreign direct investment,policy coordination
    JEL: E11 E12 E62 F55 H25
    Date: 2018
  4. By: Inoue, Hitoshi; Nakashima, Kiyotaka; Takahashi, Koji
    Abstract: We examine the reason that there have coexisted the two opposing views on distressed banks' lending behavior in Japan's post-bubble period: the one is the stagnant lending in a capital crunch and the other is the forbearance lending to low-quality borrowers. To this end, we address the measurement problem for bank balance sheet risk. We identify the credit supply and allocation effects of bank capital in the bank loan equation specified at loan level, thereby finding that the ``parallel worlds'', or the two opposing views, emerge because the regulatory capital does not reflect the actual condition of increased risk on bank balance sheet, while the market value of capital does. By uncovering banks' engagement in patching-up of the regulatory capital in the Japan's post-bubble period, we show that lowly market capitalized banks that had difficulty in building up adequate equity capital for their risk exposure decreased the overall supply of credits. The parallels world can emerge whenever banks are allowed to overvalue assets with their discretion, as in Japan' post-bubble period.
    Keywords: bank capital structure; capital crunch; forbearance lending; loan-level data; uncertainty; bank risk taking.
    JEL: G01 G21 G28
    Date: 2018–07–26

General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.