nep-acc New Economics Papers
on Accounting and Auditing
Issue of 2019‒04‒22
five papers chosen by

  1. Taxation in the digital economy: Recent policy developments and the question of value creation By Olbert, Marcel; Spengel, Christoph
  2. Tax Professionals: Tax-Evasion Facilitators or Information Hubs? By Marco Battaglini; Luigi Guiso; Chiara Lacava; Eleonora Patacchini
  3. Fragile New Economy: The Rise of Intangible Capital and Financial Instability By Li, Ye
  4. Tax Competition and the Efficiency of “Benefit-Related†Business Taxes By Gugl, Elisabeth; Zodrow, George R.
  5. Off-Balance Sheet Activities, Inefficiency and Market Power of U.S. Banks By Wheelock, David C.; Wilson, Paul W.

  1. By: Olbert, Marcel; Spengel, Christoph
    Abstract: The paper reviews the evidence on the challenges of digitalization for direct (corporate profit) and indirect (consumption) taxation. Based on both anecdotal and empirical evidence, we evaluate ongoing developments at the OECD and European Union level and argue that there is no justification for introducing a new tax order for digital businesses. In particular, the significant digital presence and the digital services tax as put forward by the European Commission will most likely distort corporate decisions and spur tax competition. To contribute to the development of tax rules in line with value creation as the gold standard for profit taxation the paper discusses data as a "new" value-driving asset in the digital economy. It draws on insights from interdisciplinary research to highlight that the value of data emerges through proprietary activities conducted within businesses. We ultimately discuss how existing transfer pricing solutions can be adapted to business models employing data mining.
    Keywords: Digital Economy,Corporate Taxation,Business Model Analysis,Data Mining,Tax Planning
    JEL: H20 H25 H26 L21 L86 M14
    Date: 2019
  2. By: Marco Battaglini; Luigi Guiso; Chiara Lacava; Eleonora Patacchini
    Abstract: To study the role of tax professionals, we merge tax records of 2.5 million taxpayers in Italy with the respective audit files from the tax revenue agency. Our data covers the entire population of sole proprietorship taxpayers in seven regions, followed over seven fiscal years. We first document that tax evasion is systematically correlated with the average evasion of other customers of the same tax professional. We then exploit the unique structure of our dataset to study the channels through which these social spillover effects are generated. Guided by an equilibrium model of tax compliance with tax professionals and auditing, we highlight two mechanisms that may be behind this phenomenon: self-selection of taxpayers who sort themselves into professionals of heterogeneous tolerance for tax evasion; and informational externalities generated by the tax professional activities. We provide evidence supporting the simultaneous presence of both mechanisms.
    JEL: H26 K34
    Date: 2019–04
  3. By: Li, Ye (Ohio State University)
    Abstract: This paper analyzes the endogenous risk in economies where intangible capital is essential and its limited pledgeability induces firms' liquidity demand. Banks emerge to intermediate the liquidity supply by holding claims on firms' tangible capital and issuing deposits that firms hold to pay for intangible investment. A bubbly value of tangible capital arises and increases in banks' balance-sheet capacity. Its procyclicality induces firms' investment and savings waves, which feed into banks' risk-taking and amplify downside risks. The model produces stagnant crises and replicates several trends in the decades leading up to the Great Recession: (1) the rise of intangible capital; (2) the increase of firms' cash holdings; (3) the growth of financial intermediation; (4) the declining real interest rate; (5) the rising prices of collateral assets.
    JEL: D92 E10 E32 E41 E44 E51 G12 G20 G31
    Date: 2019–01
  4. By: Gugl, Elisabeth (U of Victoria); Zodrow, George R. (Rice U and Centre for Business Taxation, Oxford U)
    Abstract: We construct a tax competition model in which local governments finance business public services with either a source-based tax on mobile capital, such as a property tax, or a tax on production, such as an origin-based Value Added Tax, and then assess which of the two tax instruments is more efficient. Many taxes on business apply to mobile inputs or outputs, such as property taxes, retail sales taxes, and destination-based VATs, and their inefficiency has been examined in the literature; however, proposals from several prominent tax experts to utilize a local origin-based VAT have not been analyzed theoretically. Our primary finding is that the production tax is less inefficient than the capital tax under many--but not all--conditions. The intuition underlying this result is that the efficiency of a user fee on the public business input is roughly approximated by a production tax, which applies to both the public input and immobile labor (in addition to mobile capital). In marked contrast, the capital tax applies only to mobile capital and is thus likely to be relatively inefficient.
    Date: 2019
  5. By: Wheelock, David C. (Federal Reserve Bank of St. Louis); Wilson, Paul W. (Clemson University)
    Abstract: The Lerner index is a well-established measure of firms’ market power, but estimation and interpretation present several challenges, especially for banks. We estimate Lerner indices for U.S. banks for 2001-2016 while (i) accounting for banks’ off-balancesheet activities, (ii) estimating cost and profit functions nonparametrically to avoid mis-specification inherent in parametric estimation of translog functions on banking data, and (iii) allowing for cost and profit inefficiency that can otherwise bias index estimates. We find that banks have more market power than previous studies found, and that failure to account for off-balance-sheet activities or inefficiency can seriously bias estimates of market power.
    Keywords: banks; concentration; market power; nonparametric regression
    JEL: C12 C13 C14 G21 L13
    Date: 2019–04–16

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.