nep-acc New Economics Papers
on Accounting and Auditing
Issue of 2019‒05‒06
ten papers chosen by

  1. The effects of official and unofficial information on tax compliance By Filomena Garcia; Luca David Opromolla; Andrea Vezzulli; Rafael Marques
  2. Aligning profit taxation with value creation By Wolfram F. Richter
  3. Transparency and Tax Evasion: Evidence from the Foreign Account Tax Compliance Act (FATCA) By De Simone, Lisa; Lester, Rebecca; Markle, Kevin
  4. Globalization and taxation: theory and evidence By Priyaranjan Jha; Giray Gozgor
  5. Optimal Corporate Taxation Under Financial Frictions By Davila, Eduardo; Hebert, Benjamin
  6. Indonesia's Public Wealth: A Balance Sheet Approach to Fiscal Policy Analysis By Majdeline El Rayess; Avril Halstead; Jason Harris; John Ralyea; Alexander F. Tieman
  7. Property Tax Reform and Land Use: Evidence from Japan By Tomomi Miyazaki; Motohiro Sato
  8. Optimal Cooperative Taxation in the Global Economy By Chari, V. V.; Nicolini, Juan Pablo; Teles, Pedro
  9. The cyclicality in SICR: mortgage modelling under IFRS 9 By Gaffney, Edward; McCann, Fergal
  10. Transaction-tax evasion in the housing market By José G. Montalvo; Amedeo Piolatto; Josep Raya

  1. By: Filomena Garcia (Indiana University, & UECE); Luca David Opromolla (Banco de Portugal, CEPR, CESifo, & UECE); Andrea Vezzulli (University of Insubria); Rafael Marques (ISEG-School of Economics and Management)
    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.
    Keywords: Tax morale, Information, Tax evasion, Experiment, Peer Effects
    JEL: H26 D63 C24 C92 Z13
    Date: 2018–04
  2. By: Wolfram F. Richter
    Abstract: The OECD seeks to align transfer pricing and profit taxation with value creation but fails to provide a clear definition. This paper argues that value creation requires international cooperation and that the profit tax base should therefore be allocated according to standards commonly considered as fair when distributing the surplus of cooperation. The claim that current rules of international profit taxation are aligned with value creation is rejected. If anything, the OECD’s objective suggests a tax system in which profits are split between the involved jurisdictions. This result triggers the question of possible implementation which is discussed in some detail.
    Keywords: international corporate income taxation, intellectual property, value creation, Shapley value, profit splitting
    JEL: H25 F23 M48
    Date: 2019
  3. By: De Simone, Lisa (Stanford University); Lester, Rebecca (Stanford University); Markle, Kevin (University of Iowa)
    Abstract: We examine how U.S. individuals respond to regulation intended to reduce offshore tax evasion. Specifically, we study investment responses to the Foreign Account Tax Compliance Act (FATCA), which requires foreign financial institutions to report information to the U.S. government regarding U.S. account holders. We document a $15.3 billion decrease in equity foreign portfolio investment to the U.S. from tax haven countries after FATCA implementation, consistent with a decrease in “round-tripping†investment activity attributable to U.S. investors’ offshore tax evasion activities. When testing total worldwide investment out of financial accounts in havens post-FATCA, we find a decline of $56.6-$78.0 billion. We also provide evidence of other important consequences of this regulation, including increased expatriations of U.S. citizens and greater investment in alternative assets not subject to FATCA reporting, such as residential real estate and artwork. Our study contributes to both the academic literature on regulation and crime and to the policy analysis of regulation to reduce tax evasion.
    Date: 2019–02
  4. By: Priyaranjan Jha; Giray Gozgor
    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 data set. On average, globalization is associated with lower taxation but there is some evidence that in countries with high capital-labor ratio, globalization is associated with increased taxation. We make a distinction between de jure and de facto measures of globalization and find a strong negative relationship between taxation and de jure measures of globalization. The results for de facto measures of globalization are mixed.
    Keywords: trade liberalization, capital market openness, redistributive taxation, median voter
    JEL: F11 F21 H11
    Date: 2019
  5. By: Davila, Eduardo (Yale University/New York University and NBER); Hebert, Benjamin (Stanford University and NBER)
    Abstract: We study optimal corporate taxation when firms are financially constrained. We describe a corporate taxation principle: taxes should be levied on unconstrained firms, which value resources inside the firm less than constrained firms. Under complete information, this principle completely characterizes optimal corporate tax policy. With incomplete information, the government can use payout policy to elicit whether a firm is constrained, and tax accordingly. In our static model, optimal corporate taxation can be implemented by a corporate dividend tax, and in our dynamic model, the optimal sequence of mechanisms can also be implemented by a corporate dividend tax.
    JEL: G38 H21 H25
    Date: 2019–01
  6. By: Majdeline El Rayess; Avril Halstead; Jason Harris; John Ralyea; Alexander F. Tieman
    Abstract: Public sector balance sheets (PSBS) provide a framework for comprehensive and deep analysis of fiscal risks and policies. To illustrate these benefits, this paper shows how PSBS analysis can be applied to assess risks to Indonesia’s public sector stemming from its public corporations. The paper also shows that the government’s plans to finance a ramp-up in public investment with additional tax revenue increases both economic growth and public wealth.
    Date: 2019–04–24
  7. By: Tomomi Miyazaki (Graduate School of Economics, Kobe University); Motohiro Sato (Graduate School of Economics, Hitotsubashi University)
    Abstract: It is often said that farmland conservation in urban areas (i.e., cities and inner suburbs) is not desirable because it hinders converting farmland into residential areas, thereby deterring urbanization. If the preferential treatment of property taxes on farmland is rectified, these problems can be solved. In this paper, we study two property tax preferential treatment reforms that took place in Japan during the 1990s. We examine the effects of these reforms by theoretical and empirical investigation. The econometric results are consistent with our theoretic model’s main predictions; the proportion of farmland in the major cities in the three metropolitan areas (Tokyo, Chubu, and Kansai) decreased following the reforms. However, since landlords did not replace all the farmland with housing lots, the problem of obstructed urbanization remains to be solved.
    Keywords: Property tax; Land use in urban area; preferential treatment on farmland; urbanization
    JEL: H22 H71 R52 R58
    Date: 2019–04
  8. By: Chari, V. V. (Federal Reserve Bank of Minneapolis); Nicolini, Juan Pablo (Federal Reserve Bank of Minneapolis); Teles, Pedro (Banco de Portugal)
    Abstract: We use the Ramsey and Mirrlees approaches to study how fiscal and trade policy should be set cooperatively when governments must raise revenues with distorting taxes. Free trade and unrestricted capital mobility are optimal. Efficient outcomes can be implemented with taxes only on final consumption goods and labor income. We study alternative tax systems, showing that uniform taxation of household asset returns, and not taxing corporate income yields efficient outcomes. Border adjustments exempting exports from and including imports in the tax base are desirable. Destination and residence based tax systems are desirable compared to origin and source based systems.
    Keywords: Capital income tax; Free trade; Value-added taxes; Border adjustment; Origin- and destination-based taxation; Production efficiency
    JEL: E60 E61 E62
    Date: 2019–04–18
  9. By: Gaffney, Edward; McCann, Fergal
    Abstract: Banks must make forward-looking provisions for loan losses under new international accounting standards introduced in 2018. In Europe, banks will assign performing exposures to a new “Stage 2” category with a higher provisioning penalty, if they have experienced significant increase in credit risk (SICR). We use a loan-level credit risk model and Irish residential mortgage panel data to assign performing loans into the appropriate stage. Using this technique, we characterise approximately 30 per cent of the performing Irish mortgage portfolio at end-2015 as Stage 2.We then calculate backward-looking, static estimations of Stage 2 mortgages between 2008 and 2015. This exercise suggests that loan stage assignment can be highly pro-cyclical. The share of Stage 2 among performing mortgages rises during the economic downturn to peak in 2013, after which large transitions are assigned from Stage 2 into lower-risk performing loans, as the economy improves. JEL Classification: G21
    Keywords: credit risk, loan provisioning, mortgage defaults, stress testing
    Date: 2019–05
  10. By: José G. Montalvo (Universitat Pompeu Fabra-ICREA, BGSE); Amedeo Piolatto (Universitat Autònoma de Barcelona, Institut d’Economia de Barcelona (IEB), BGSE, MOVE); Josep Raya (Universitat Pompeu Fabra, ESCSE (Tecnocampus))
    Abstract: We model the behaviour of a buyer trying to evade the real estate transfer tax. We identify over-appraisal as a key, easily-observable element that is inversely related with tax evasion. We conclude that the tax authority could focus auditing efforts on low-appraisal transactions. We include ‘behavioural’ components (shame and stigma) allowing to introduce buyers' (education) and societal (social capital) characteristics that explain individual and idiosyncratic variations. Our empirical analysis confirms the predictions using a unique database, where we directly observe: real payment, value declared to the authority, appraisal, buyers' educational level and local levels of corruption and trust.
    Keywords: Transfer tax, tax evasion, second-hand housing market, overappraisal, Loan-To-Value, corruption, social capital, stigma, shame, education
    JEL: G21 H26 R21
    Date: 2019

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