nep-acc New Economics Papers
on Accounting and Auditing
Issue of 2019‒01‒28
nine papers chosen by

  1. The Rise in Corporate Saving and Cash Holding in Advanced Economies: Aggregate and Firm Level Trends By Mai Chi Dao; Chiara Maggi
  2. "On the Design of Empirical Stock-Flow-Consistent Models" By Gennaro Zezza; Francesco Zezza
  3. Tax avoidance and accounting conservatism By Bornemann, Tobias
  4. Pouring Oil on Fire: Interest Deductibility and Corporate Debt By Pietro Dallari; Nicolas End; Fedor Miryugin; Alexander F. Tieman; Reza Yousefi
  5. The effect of intellectual property boxes on innovative activity & effective tax rates By Bornemann, Tobias; Laplante, Stacie K.; Osswald, Benjamin
  6. Methodologies for the Assessment of Current Account Benchmarks By Leonor Coutinho; Alessandro Turrini; Stefan Zeugner
  7. Frontloaded Income Taxation of Old-Age Pensions: For Efficiency and Fairness in a World of International Labor Mobility By Bernd Genser; Robert Holzmann
  8. Growth Effects of Corporate Balance Sheet Adjustments in the EU: An Econometric and Model-based Assessment By Romanos Priftis; Anastasia Theofilakou
  9. Fuzzy Profit Shifting: A Model for Optimal Tax-induced Transfer Pricing with Fuzzy Arm's Length Parameter By Rathke, Alex A.T.

  1. By: Mai Chi Dao; Chiara Maggi
    Abstract: Using cross-country national accounts and firm-level data, we document a broad-based trend in rising gross saving and net lending of non-financial corporates across major industrialized countries over the last two decades, though most pronounced in countries with persistent current account surpluses. We find that this trend holds consistently across major industries, and is concentrated among large firms, driven by rising profitability, lower financing costs, and reduced tax rates. At the same time, higher gross corporate saving have not supported a commensurate increase in fixed capital investment, but instead led to a build-up of liquid financial assets (cash). The determinants of corporate cash holding and saving are also broad-based across countries, with the growth in assets of large firms, R&D intensity, and lower effective tax rates accounting for most of the increase over the last 15 years.
    Date: 2018–12–07
  2. By: Gennaro Zezza; Francesco Zezza
    Abstract: While the literature on theoretical macroeconomic models adopting the stock-flow-consistent (SFC) approach is flourishing, few contributions cover the methodology for building a SFC empirical model for a whole country. Most contributions simply try to feed national accounting data into a theoretical model inspired by Wynne Godley and Marc Lavoie (2007), albeit with different degrees of complexity. In this paper we argue instead that the structure of an empirical SFC model should start from a careful analysis of the specificities of a country's sectoral balance sheets and flow of funds data, given the relevant research question to be addressed. We illustrate our arguments with examples for Greece, Italy, and Ecuador. We also provide some suggestions on how to consistently use the financial and nonfinancial accounts of institutional sectors, showing the link between SFC accounting structures and national accounting rules.
    Keywords: Empirical Stock-Flow-Consistent Models; Ecuador; Greece; Italy
    JEL: E12 E42
    Date: 2019–01
  3. By: Bornemann, Tobias
    Abstract: This study analyzes the relation between accounting conservatism, future tax rate cuts and countries' level of book-tax conformity. Firms have an incentive to increase conservatism in financial reporting when a tax rate cut is imminent to shift taxable income into the lower taxed future. Using a panel of firms across 18 countries from 1995 to 2010 I find that conditional conservatism is positively and significantly associated with future tax rate cuts when book-tax conformity is high. This effect is particularly pronounced for firms that concentrate the majority of their operations in the country in which the tax rate is cut. In contrast, there is no significant relation between future tax rate cuts and unconditional conservatism.
    Keywords: accounting conservatism,tax rate cuts,book-tax conformity
    JEL: H21 H25
    Date: 2018
  4. By: Pietro Dallari; Nicolas End; Fedor Miryugin; Alexander F. Tieman; Reza Yousefi
    Abstract: This paper investigates the role of tax incentives towards debt finance in the buildup of leverage in the nonfinancial corporate (NFC) sector, using a large firm-level dataset. We find that so-called debt bias is a significant driver of leverage, for both small and medium-sized enterprises and larger firms, with its effect accounting for about a quarter of leverage. The strength of this effect differs with firm size, the availability of collateral, income and income volatility, cash flow, and capital intensity. We conclude that leveling the playing field between debt and equity finance through tax policy reform would decrease NFC leverage, reducing economic risks posited by leverage.
    Keywords: Tax incentives;Tax policy;Corporate debt;Corporate income taxes;Leverage, Debt Bias, Corporate Income Tax, SMEs, Micro data, Business Taxes and Subsidies, Incidence, Firm Behavior: Empirical Analysis
    Date: 2018–12–07
  5. By: Bornemann, Tobias; Laplante, Stacie K.; Osswald, Benjamin
    Abstract: We investigate whether the adoption of an intellectual property box increases innovative activity and what type of firms benefit. We examine the adoption of the intellectual property box in Belgium because it allows us to cleanly identify the impact on innovative activity and effective tax rates. Our results indicate an overall increase in innovative activity as proxied by patent grants, the efficiency with which firms apply for and receive patents, and employment. We also provide evidence that, while firms with patents on average enjoy lower effective tax rates, the greatest financial benefits accrue to multinational firms without income shifting opportunities, followed by domestic firms. Multinational firms with income shifting opportunities do not significantly benefit from the intellectual property box.
    Keywords: IP boxes,tax incentive,tax avoidance,income shifting
    JEL: H21 H25
    Date: 2018
  6. By: Leonor Coutinho; Alessandro Turrini; Stefan Zeugner
    Abstract: This paper describes two methodologies to compute benchmarks for current account balances. The first benchmark helps to assess the implications of current account balances for the Net International Investment Position (NIIP). These NIIP-stabilising benchmarks are the current account/GDP ratios required to stabilise the stock of net external liabilities at their current levels, or for the NIIP to reach a pre-specified prudential target. The second benchmark computes current account norms which represent current account balances that are in line with economic fundamentals. This benchmark is obtained from the estimation of an empirical model for current accounts based on annual data from a panel of 65 advanced and emerging economies following a methodology akin to Phillips et al. (2013). Current account norms are computed as the prediction from the model restricted to explanatory factors that can be considered as fundamentals, i.e. non-temporary economic factors and policy-related variables at ‘normal’ (world-average) level. The first two benchmarks provide complementary information in assessing current account positions: the NIIPstabilising current account permits the implications of stock imbalances to be assessed from a prudential perspective; while current account norms allow deviations from economic fundamentals over the mediumto-long term to be evaluated.
    JEL: F31 F32 F41 F42
    Date: 2018–09
  7. By: Bernd Genser; Robert Holzmann
    Abstract: Strong evidence shows that the existing pattern of cross-border pension taxation in OECD countries and beyond is extremely diverse and inconsistent, generating a double fairness dilemma for individuals and countries alike. This paper argues that this dilemma cannot be solved within the current network of double-taxation treaties. Instead, it proposes a new approach for the taxation of old-age pensions in a world of high and increasing cross-border mobility of workers and pensioners. The paper demonstrates that a coordinated move to frontloaded pension taxation and exclusive source taxation would pave the way for an international pension tax order that eliminates the double fairness dilemma. An additional innovative element of frontloaded pension taxation is presented: the decoupling of individual tax assessment and tax payment, which may help curb political opposition against frontloaded pension taxation and smooth transitional effects after its introduction.
    Keywords: pension taxation, international taxation, international migration, double taxation convention
    JEL: H24 H55 H87 F22
    Date: 2018
  8. By: Romanos Priftis; Anastasia Theofilakou
    Abstract: This paper investigates the impact of active balance sheet adjustments in the non-financial corporate sector on economic growth in the EU. We first jointly model firms' ability to reduce their balance sheet imbalances and a growth equation in an instrumental variables (IV) panel context. This enables us to explicitly consider the contemporaneous interaction between corporate balance sheet adjustment and growth, which can otherwise bias inference. Our main findings inter alia suggest that: i) periods of active corporate deleveraging are associated on average with lower output growth compared to periods when no adjustment takes place, and ii) a decline in corporate debt overhang supports output growth. To explore the deleveraging mechanism qualitatively we then employ a banking variant of the Commission's QUEST model and show that following a deleveraging shock, triggered by a tightening of firms' collateral constraints, the effects on investment and GDP are negative in the short-run. In the medium run once corporate debt has been reduced the effects fade away allowing the economy to recover. In the long run the effects are largely neutral suggesting that the source of investment financing, be it financial intermediaries or the stock market, does not seem to matter.
    JEL: C3 E21 G2
    Date: 2018–01
  9. By: Rathke, Alex A.T.
    Abstract: This paper proposes a model of optimal tax-induced transfer pricing with a fuzzy arm's length parameter. Fuzzy numbers provide a suitable structure for modelling the ambiguity that is intrinsic to the arm's length parameter. For the usual conditions regarding the anti-shifting mechanisms, the optimal transfer price becomes a maximising a-cut of the fuzzy arm's length parameter. Nonetheless, we show that it is profitable for firms to choose any maximising transfer price if the probability of tax audit is sufficiently low, even if the chosen price is considered a completely non-arm's length price by tax authorities. In this case, we derive the necessary and sufficient conditions to prevent this extreme shifting strategy.
    Keywords: fuzzy profit shifting, transfer pricing, tax evasion, tax enforcement, tax penalty.
    JEL: F23 H26 K34
    Date: 2019–01–12

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