nep-acc New Economics Papers
on Accounting and Auditing
Issue of 2019‒05‒13
seven papers chosen by
Alexander Harin
Modern University for the Humanities

  1. Compliance effects of risk-based tax audits By Knut Løyland; Oddbjørn Raaum; Gaute Torsvik; Arnstein Øvrum
  2. The size distribution of monetary policy effects among South African manufacturing firms: Firm-level evidence from administrative tax data By Lesame Keagile
  3. Tax Research in South Africa By Pirttilä Jukka; Ebrahim Amina; Gcabo Rebone; Khumalo Lilian
  4. Incentivized Resume Rating: Eliciting Employer Preferences without Deception By Judd B. Kessler; Corinne Low; Colin Sullivan
  5. Big and ‘unprofitable’: How 10% of multinational firms do 98% of profit shifting By Wier Ludvig; Reynolds Hayley
  6. Conditions for the stability of a Cournot duopoly model with tax evasion and time delay By Raul Villafuerte-Segura; Eduardo Alvarado-Santos; Benjamin A. Itza-Ortiz
  7. Tax-Sheltered Retirement Accounts: Can Financial Education Improve Decisions? By M. Martin Boyer; Philippe d'Astous; Pierre-Carl Michaud

  1. By: Knut Løyland; Oddbjørn Raaum; Gaute Torsvik; Arnstein Øvrum
    Abstract: Tax administrations use machine learning to predict risk scores as a basis for selecting individual taxpayers for audit. Audits detect noncompliance immediately, but may also alter future filing behavior. This analysis is the first to estimate compliance effects of audits among high-risk wage earners. We exploit a sharp audit assignment discontinuity in Norway based on individual tax payers risk score. Additional data from a random audit allow us to estimate how the audit effect vary across the risk score distribution. We show that the current risk score audit threshold is set far above the one that maximizes net public revenue.
    Keywords: tax audits, tax revenue, tax reporting decisions, income tax, machine learning, risk profiling
    JEL: D04 H26 H83
    Date: 2019
  2. By: Lesame Keagile
    Abstract: Monetary policy is believed to have a disproportionate effect on firms, depending on their size. Financially constrained firms with limited access to capital markets are expected to be more sensitive to changes in interest rates; this is characteristic of small firms.This paper empirically tests this hypothesis for firms in the South African manufacturing sector, using the South African Revenue Service’s comprehensive tax administrative data set. The interest coverage ratio is used to measure firms’ debt service burden, thus capturing the effect of changes in interest rates on the debt burden of firms categorized by size.The results provide evidence to support the argument that the effect of monetary policy decisions on manufacturing firms depends on firm size: smaller firms experience greater effects of interest rate changes.These findings suggest that monetary authorities should consider the balance sheet health of firms, particularly small firms, when making monetary policy decisions.
    Keywords: Administrative data,credit channel,Database,Financial constraints,Firm heterogeneity,Tax data,Monetary policy
    Date: 2019
  3. By: Pirttilä Jukka; Ebrahim Amina; Gcabo Rebone; Khumalo Lilian
    Abstract: This framing paper has two main purposes. We first provide a brief survey of the economic literature on taxation in South Africa. Second, we attempt to offer some ideas about areas and topics on which more information is needed and which are therefore suitable topics for further research.Replications of earlier studies conducted using older South African data or from elsewhere, are also considered in this context. We present our thoughts on gaps in the literature and make some recommendations on future research possibilities.
    Keywords: Tax administration data,Tax incidence,Taxation
    Date: 2019
  4. By: Judd B. Kessler; Corinne Low; Colin Sullivan
    Abstract: We introduce a new experimental paradigm to evaluate employer preferences, called Incentivized Resume Rating (IRR). Employers evaluate resumes they know to be hypothetical in order to be matched with real job seekers, preserving incentives while avoiding the deception necessary in audit studies. We deploy IRR with employers recruiting college seniors from a prestigious school, randomizing human capital characteristics and demographics of hypothetical candidates. We measure both employer preferences for candidates and employer beliefs about the likelihood candidates will accept job offers, avoiding a typical confound in audit studies. We discuss the costs, benefits, and future applications of this new methodology.
    JEL: C90 J24 J71
    Date: 2019–05
  5. By: Wier Ludvig; Reynolds Hayley
    Abstract: Globally, the largest 0.001 per cent of firms earn roughly one-third of all corporate profits. Nonetheless, there is little understanding of how profit shifting differs across firm size.Using South African corporate tax returns from 2010–14, we investigate the link between firm size and profit shifting. We estimate that firms owned by a parent in a tax haven avoid taxation on as much as 80 per cent of their true income. However, this aggregate tax loss conceals large differences across firms.The majority of firms shift little income to tax havens, while a few large firms shift a lot. The top decile of foreign-owned firms accounts for 98 per cent of the total estimated tax loss. This extreme concentration of tax planning has not been documented before and has implications for both research and policy.First, our results imply that tax havens create competitive distortions as larger firms benefit more. Second, as past research does not account for heterogeneity across firms, it may underestimate the total tax loss caused by profit shifting.As an illustration of this, we revisit the OECD’s official estimate of profit shifting and find that profit shifting may have been dramatically underestimated.Resources Appendix.xlsx Appendix.pdf
    Keywords: Multinational firms,Profit shifting,Tax,Developing countries,International taxation
    Date: 2018
  6. By: Raul Villafuerte-Segura; Eduardo Alvarado-Santos; Benjamin A. Itza-Ortiz
    Abstract: We study a Cournot duopoly model with tax evasion and time delay. We prove that if the marginal production costs of both competing firms are equal then the equilibrium point is asymptotically stable and independent of time delay. As consequence, our model can not have bifurcations if the delay, as a parameter, is varied. It further imply that less tax evasion and higher public revenue can be achieved either by increasing the effectiveness of audits or by adjusting the penalties for tax evasion.
    Date: 2019–05
  7. By: M. Martin Boyer; Philippe d'Astous; Pierre-Carl Michaud
    Abstract: We conduct a stated-choice experiment to analyze the decision to contribute to front or back-loaded tax-sheltered savings accounts. Our experimental design includes a randomized financial education treatment that provides information on the two types of accounts. We assess whether respondents learn about the tax implications of these accounts, and whether they make better contribution choices when exposed to the financial education intervention. We find that, relative to a control group, our intervention improves both the understanding of the tax implications of the savings accounts (an increase of 6 to 15 points on a score of 100) and the quality of contribution decisions, improving the well-being of respondents by about 140$ in each scenario presented to them.
    Keywords: Tax sheltered saving,retirement saving,financial education,
    JEL: G11 H31 D14
    Date: 2019–05–03

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