nep-acc New Economics Papers
on Accounting and Auditing
Issue of 2019‒06‒24
seven papers chosen by

  1. The Dynamic Effects of Tax Audits By Advani, Arun; Elming, William; Shaw, Jonathan
  2. The Impact of Country-by-Country Reporting on Corporate Tax Avoidance By Felix Hugger
  3. Electoral Competition and Corruption: Theory and Evidence from India By Afridi, Farzana; Dhillon, Amrita; Solan, Eilon
  4. Basel III in Africa: Making It Work By Ozili, Peterson K
  5. Модел на счетоводна политика на юридическо лице с нестопанска цел по примера на сдруженията By Георгиева, Даниела
  6. Tax Bunching at the Kink in the Presence of Low Capacity of Enforcement: Evidence From Uruguay By Marcelo Bérgolo; Gabriel Burdín; Mauricio De Rosa; Matías Giaccobasso; Martín Leites
  7. From Basel I to Basel III: Sequencing Implementation in Developing Economies By Caio Ferreira; Nigel Jenkinson; Christopher Wilson

  1. By: Advani, Arun (University of Warwick); Elming, William (IFS and TARC); Shaw, Jonathan (Financial Conduct Authority)
    Abstract: Understanding causes of and solutions to non-compliance is important for a tax authority. In this paper we study how and why audits affect reported tax in the years after audit – the dynamic effect – for individual income taxpayers. We exploit data from a random audit program covering more than 53,000 income tax self assessment returns in the UK, combined with data on the population of tax filers between 1999 and 2012. We first document that there is substantial non-compliance in this population. One in three filers underreports the tax owed. Third party information on an income source does not predict whether a taxpayer is non-compliant on that income source, though it does predict the extent of underreporting. Using the random nature of the audits, we provide evidence of dynamic effects. Audits raise reported tax liabilities for at least five years after audit, implying an additional yield 1.5 times the direct revenue raised from the audit. The magnitude of the impact falls over time, and this decline is faster for less autocorrelated income sources. Taking an event study approach, we further show that the change in reporting behaviour comes only from those found to have made errors in their tax report. Finally, using an extension of the Allingham-Sandmo (1972) model, we show that these results are best explained by audits providing the tax authority with information, which then constrains taxpayers’ ability to misreport.
    Keywords: tax audits, tax revenue, tax reporting decisions, income tax, self assessment, HMRC JEL Classification: D04, H26, H83
    Date: 2019
  2. By: Felix Hugger
    Abstract: Within the framework of its BEPS initiative, the OECD introduced a requirement for non-public country-by-country reporting (CbCR) applying to multinational companies with revenues above EUR 750m. The reports provide data on the global activities and financial structure of multinationals at a country level to tax authorities. This paper investigates the effectiveness of this measure against corporate tax avoidance using a difference-in-difference approach. The analysis is based on financial data both at the group and the subsidiary level. By testing several hypotheses, this paper provides limited support for the effectiveness of CbCR. While the effective tax rates of multinational groups with a reporting requirement increase by about 0.8 percentage points as compared to companies in the control group, the growth rate of total tax payments is unaffected. This seems to be due to a reduction of the tax base which is also due to a rise in leverage and resulting tax-deductible interest payments. At the same time, shifting of profits out of high tax jurisdictions is reduced by CbCR, but not at the expense of low tax OECD countries. CbCR therefore seems to primarily reduce profits located in tax haven affiliates of multinational groups. Lastly, there is little evidence for a distribution of profits closer aligned with frequently suggested apportionment factors.
    Keywords: Corporate tax avoidance, multinational firms, country-by-country reporting, profit shifting,
    JEL: H20 H26 F23 K34
    Date: 2019
  3. By: Afridi, Farzana (Indian Statistical Institute, Delhi and IZA, Bonn); Dhillon, Amrita (Kings College London); Solan, Eilon (Tel Aviv University)
    Abstract: In developing countries with weak enforcement, there is implicitly a large reliance on re-election incentives to reduce corruption. In this paper we extend existing models of post-election accountability with pure moral hazard to incorporate heterogeneous voters. In contrast to this existing literature, we show that electoral discipline is a weak instrument for improving accountability in a majoritarian voting system. More specifically, our model predicts that not only does corruption increase with competition under some conditions, but that the only type of corruption that is responsive to electoral competition is one where voters lose private benefits from the corruption, while corruption in public goods is not responsive. Consistent with these hypotheses, novel panel data on village level audits of one of India’s largest rural public works program suggest a U-shaped relationship between electoral competition and corruption, and responsiveness of corruption only in the private benefits of the program to competition. Our findings highlight the importance of credible penalties and the need for policy interventions that reduce pilferage in the public component of welfare programs, which entail larger welfare losses to citizens.
    Keywords: Corruption, Electoral Competition, Audit, Accountability, Moral Hazard. JEL Classification: D72, D82, H75, O43, C72.
    Date: 2019
  4. By: Ozili, Peterson K
    Abstract: Basel III is a framework to protect the global banking system. This article provides a policy discussion on Basel III in Africa. The significance of Basel III is discussed, and some ideas to consider when implementing Basel III to make it work in Africa, are provided. Under Basel III, the African banking industry should expect better capital quality, higher capital levels, minimum liquidity requirement for banks, reduced systemic risk, and differences in Basel III transitional arrangements. This article also emphasizes that (i) there should be enough time for the transition to Basel III in Africa, (ii) a combination of micro and macro-prudential regulations is needed; and (iii) the need to repair the balance sheets of banks, in preparation for Basel III. The discussions in this article will benefit policymakers, academics and other stakeholders interested in financial regulation in Africa such as the World bank and the International Monetary Fund (IMF).
    Keywords: Basel III, Bank business models, Bank performance, Financial stability, Capital regulation, Bank regulation, Africa
    JEL: G21 G23 G28 G32
    Date: 2019
  5. By: Георгиева, Даниела
    Abstract: Основна авторова цел е да се направи изследване на разработени в счетоводната практика и оповестени значими счетоводни политики на сдружения, извършващи дейност на територията на Р България. На база проведено анкетно проучване са представени някои анализи относно вижданията на потребители на данни от счетоводната политика за основните съдържателни аспекти по конкретни елементи на документа. На тази основа е предложен модел на счетоводна политика на сдружение. Резултатите от проучването биха спомогнали за по-доброто разбиране на счетоводната политика, нейната структура и очаквани съдържателни компоненти от страна на ползвателите й.
    Keywords: счетоводна политика, сдружение, модел, елементи.
    JEL: M41 M48 M49
    Date: 2018
  6. By: Marcelo Bérgolo (Universidad de la República (Uruguay). Facultad de Ciencias Económicas y de Administración. Instituto de Economía); Gabriel Burdín (The University of Leeds); Mauricio De Rosa (Universidad de la República (Uruguay). Facultad de Ciencias Económicas y de Administración. Instituto de Economía); Matías Giaccobasso (Universidad de la República (Uruguay). Facultad de Ciencias Económicas y de Administración. Instituto de Economía); Martín Leites (Universidad de la República (Uruguay). Facultad de Ciencias Económicas y de Administración. Instituto de Economía)
    Abstract: A first-order policy issue in low and middle income countries is how to design optimal tax systems in order to improve the state’s potential of supporting economic development. Although information regarding behavioral responses to taxation is a key input for tax design, the evidence in developing contexts is still scarce. In this paper we contribute to fill this gap by exploring in detail how individual taxpayers respond to personal income taxation in Uruguay. To do this, we rely on rich administrative tax records covering the universe of Uruguayan taxpayers and implement a bunching design. First, we find a moderate implied elasticity of taxable income (0.16) in the first kink point of the tax schedule. Second, we investigate the mechanisms driving these responses extensively. We find that the observed responses are a combination of both gross labor income and deductions responses. In particular, we document a more intensive use of personal deductions for taxpayers close to the kink point, and suggestive evidence of evasion responses through unilateral and employer-employee collusion labor income misreporting. Our results suggest that policy efforts should be directed at broadening the tax base and improving the enforcement capacities of tax authorities rather than eroding tax progressivity.
    Keywords: Personal income taxation, tax bunching, elasticity of labor income, deductions behavior, misreporting, developing economies
    JEL: H21 H24 H30 J22
    Date: 2019–02
  7. By: Caio Ferreira; Nigel Jenkinson; Christopher Wilson
    Abstract: Developing economies can strengthen their financial systems by implementing the main elements of global regulatory reform. But to build an effective prudential framework, they may need to adapt international standards taking into account the sophistication and size of their financial institutions, the relevance of different financial operations in their market, the granularity of information available and the capacity of their supervisors. Under a proportionate application of the Basel standards, smaller institutions with less complex business models would be subject to a simpler regulatory framework that enhances the resilience of the financial sector without generating disproportionate compliance costs. This paper provides guidance on how non-Basel Committee member countries could incorporate banks’ capital and liquidity standards into their framework. It builds on the experience gained by the authors in the course of their work in providing technical assistance on—and assessing compliance with—international standards in banking supervision.
    Date: 2019–06–14

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