nep-acc New Economics Papers
on Accounting and Auditing
Issue of 2019‒10‒21
nine papers chosen by

  1. Taxation and the Superrich By Scheuer, Florian; Slemrod, Joel
  2. Can European banks' country-by-country reports reveal profit shifting? An analysis of the information content of EU banks' disclosures By Dutt, Verena K.; Nicolay, Katharina; Vay, Heiko; Voget, Johannes
  3. Tax Policy and Lumpy Investment Behavior: Evidence from China's VAT Reform By Zhao Chen; Xian Jiang; Zhikuo Liu; Juan Carlos Suárez Serrato; Daniel Xu
  4. The Economics of the Digital Services Tax By Wolfram F. Richter
  5. Dynamics of the Market for Corporate Tax-Avoidance Advice By Kai A. Konrad
  6. Compliance in Teams - Implications of Joint Decisions and Shared Consequences By Tim Lohse; Sven A. Simon
  7. Measuring R&D tax support: Findings from the new OECD R&D Tax Incentives Database By Silvia Appelt; Fernando Galindo-Rueda; Ana Cinta González Cabral
  8. Measuring tax complexity across countries: A survey study on MNCs By Hoppe, Thomas; Schanz, Deborah; Sturm, Susann; Sureth, Caren
  9. Corruption and Firms By Colonnelli, Emanuele; Prem, Mounu

  1. By: Scheuer, Florian; Slemrod, Joel
    Abstract: This paper addresses the modern optimal tax progressivity literature, which clarifies the key role of the behavioral response to taxation and accounts for the incomes of the superrich being qualitatively different than others. Some may be "superstars," for whom small differences in talent are magnified into much larger earnings differences, while others may work in winner-take-all markets, such that their effort to climb the ladder of success reduces the returns to others. We stress that pivotal tax-rate elasticities are not structural parameters, and will be smaller the broader and less plastic is the tax base and the more effective is the enforcement of tax evasion. For this reason, normative analysis of tax rates should be accompanied by attention to the tax base, with special attention to capital gains, which comprise a large fraction of the taxable income of the superrich.
    Keywords: Plasticity of Taxable Income; Superrich; Superstars; Tax Systems; Wealth Taxes; Winner-Take-All Markets
    JEL: E6 H2 I3 J3 J6
    Date: 2019–08
  2. By: Dutt, Verena K.; Nicolay, Katharina; Vay, Heiko; Voget, Johannes
    Abstract: We create a novel database of hand-collected information from the country-by-country reports (CbCRs) of more than 100 multinational bank groups headquartered in the EU for 2014-2016. We compare this new dataset with information from Orbis and Bank Focus to assess in how far the new disclosure obligation increased transparency on banks' tax avoidance behavior. Our descriptive analysis shows that CbCRs uncover a large fraction of worldwide profits and real activities in terms of employees of EU bank groups, especially in tax havens. We also document a striking disconnect between reported profits and real activity, noting considerable heterogeneity between different tax havens and bank groups from different headquarter countries. Regression analysis based on CbCR data and Bank Focus data leads us to expect a tax semi-elasticity of banks' reported profits of about -4.6. In this regard, CbCRs are indicative of a more pronounced tax sensitivity than conventional databases suggest. However, the lack of important economic variables (total assets and staff cost) impedes an exact estimation of banks' profit shifting based on CbCR data alone and with standard methods. These insights are especially relevant in the context of the ongoing political discussions whether to introduce a public CbCR for all large multinational firms in the EU.
    Keywords: Tax Avoidance,Profit Shifting,Country-by-Country Reporting,Public Disclosure,Tax Transparency,Financial Institutions,Database
    JEL: H25 H26 G21 G28
    Date: 2019
  3. By: Zhao Chen; Xian Jiang; Zhikuo Liu; Juan Carlos Suárez Serrato; Daniel Xu
    Abstract: A universal fact of firm-level data is that investment is lumpy: firms either replace a considerable fraction of their existing capital (spike) or do not invest at all (inaction). This paper incorporates the lumpy nature of investment into the study of how tax policy affects investment behavior. We show that tax policy can directly impact the lumpiness of investment and that the effectiveness of tax incentives in stimulating investment depends crucially on interactions with investment frictions. We illustrate these results by studying one of the largest tax incentives for investment in recent history: China's 2009 VAT reform. Using administrative tax data and a difference-in-differences design, we document that the reform increased investment by 36% and that this effect is driven by additional investment spikes. We then simulate the fiscal cost of stimulating investment through different tax policies using a dynamic investment model that is consistent with the reduced-form effects of the reform. Policies that directly reduce the likelihood of firm inaction (e.g., investment tax credits) are more effective at stimulating investment than policies that only reduce the tax cost of investment (e.g., corporate income tax cuts).
    JEL: E22 H25
    Date: 2019–10
  4. By: Wolfram F. Richter
    Abstract: The use of digital services is largely non-rival. This paper argues that vanishing marginal costs of supply change policy incentives. Small countries are incentivized to tax the import of digital services. In fact, various countries have already moved towards expanded source taxation of online business activities. If such practice spreads, the quality of digital services will be negatively affected. This paper argues that countries exporting digital services have reason to respond by promoting an international tax regime in which the profit earned on remote supplies of digital business services is split between the countries involved.
    Keywords: digital services, remote supply, import tax, alleviating double taxation, profit splitting
    JEL: H25 M48
    Date: 2019
  5. By: Kai A. Konrad
    Abstract: This paper addresses the current debate about mandatory disclosure rules for aggressive tax-planning models as a means to shorten regulatory delay. It focuses on the dynamic interaction of innovation and imitation of aggressive tax-planning products and governmental tax regulation and highlights the importance of the length of regulatory lag in comparison to the time it takes the tax-consulting industry to imitate newly innovated tax-avoidance products. It reveals synergies between highly innovative tax-consulting firms and the governmental tax legislator/regulator. It suggests that innovative tax-consulting firms may benefit from governmental regulation and may actively try to inform and influence the regulator to shorten but not eliminate the regulatory delay.
    Keywords: corporate taxation, tax planning, mandatory disclosure rules, tax consultants, innovation, imitation, tax avoidance, anti-tax-avoidance regulation
    JEL: H26 M48
    Date: 2018–05
  6. By: Tim Lohse; Sven A. Simon
    Abstract: In today's business environment, team work is omnipresent. But might teams be more prone toward non-compliance with laws and regulations than single individuals despite imminent negative consequences of uncovering misconduct? The recent prevalence of corporate delinquencies gives rise to this concern. In our laboratory experiment, we investigate the determinants of teams' compliance behavior. In particular, we disentangle the e¤ect of deciding jointly as a team of two from sharing the economic consequences among both team members. Our findings provide evidence that teams are substantially less compliant than individuals are. This drop in compliance is driven by the joint, rather than the individual, liability of team members. In contrast, whether subjects make their decisions alone or together does not influence the overall compliance rate. When coordinating their compliance decision teams predominately discuss the risk of getting caught in an audit, and team decision-making is characterized by behavioral spillovers between team members. Holding each team member fully liable is a promising means to deter them from going astray.
    Keywords: Compliance, lying, team decision, shared liability, audit, communication, laboratory experiment
    JEL: C92 D91 K42
    Date: 2018–05
  7. By: Silvia Appelt; Fernando Galindo-Rueda; Ana Cinta González Cabral
    Abstract: Investment in research and experimental development (R&D) is an important driver of innovation and economic growth. Over the past two decades, tax incentives have become a key policy instrument for promoting business R&D. This raises a number of policy questions: How has the role of tax incentives in the R&D support policy mix evolved across OECD countries and other major economies? How generous are tax relief provisions for different types of firms? How effective are they in stimulating business R&D investment? The OECD R&D Tax Incentives Database ( aims to contribute to the data infrastructure available to policy makers and researchers to examine the use and impact of R&D tax incentives across OECD countries and partner economies. This paper provides a practical guide to using this new database, describing the recently released R&D tax incentive data and highlighting their potential for internationally comparative work through descriptive indicators and econometric analysis.
    Date: 2019–10–15
  8. By: Hoppe, Thomas; Schanz, Deborah; Sturm, Susann; Sureth, Caren
    Abstract: Despite prior literature emphasizing the increasing role of tax complexity, there is still no comprehensive tax complexity measure. This paper fills this gap and introduces the Tax Complexity Index (TCI), which consists of a tax code subindex and a tax framework subindex. The indices are designed to capture the multidimensional nature of tax complexity from an MNC's perspective and extend previous measures that have so far only focused on selected countries or facets of tax complexity. Based on a survey of highly experienced tax consultants of the largest international tax services networks, the indices are calculated for 100 countries for the year 2016. Our findings indicate that the level of tax complexity varies considerably across countries. From a global perspective, tax complexity is strongly affected by the complexity of transfer pricing regulations in the tax code and by the complexity of tax audits in the tax framework. While we identify countries that turn out to be complex in both their tax code and tax framework, we also observe that many countries differ in their rankings on tax code and tax framework complexity, i.e., they either have a high tax code complexity and a low tax framework complexity or vice versa. When analyzing the associations between tax complexity and other country characteristics, we identify different correlation patterns. For example, we find that tax (framework) complexity is negatively associated with countries' governance, suggesting that strongly governed countries tend to have less complex tax frameworks. In contrast, we find a positive association between tax (code) complexity and the statutory tax rate, indicating that high-tax countries tend to have more complex tax codes. However, none of the observed associations is very strong. We conclude that tax complexity represents a distinct country characteristic and propose to use the TCI and its subindices as new proxies for MNCs' varying exposures to tax complexity in the assessment of country-specific corporate decisions.
    Keywords: tax complexity,tax index,tax system,multinational corporations,tax consultants
    JEL: H20 H25 C83 O57
    Date: 2019
  9. By: Colonnelli, Emanuele; Prem, Mounu
    Abstract: We estimate the causal real economic effects of a randomized anticorruption crackdown on local governments in Brazil over the period 2003-2014. After anti-corruption audits, municipalities experience an increase in economic activity concentrated in sectors most dependent on government relationships. These effects spill over to nearby municipalities and are larger when the audits are covered by the media. Back-of-the-envelope estimates suggest that $1 away from corruption generates more than $3 in local value added. Using administrative matched employer-employee and firm-level datasets and novel face-to-face firm surveys we argue that corruption mostly acts as a barrier to entry, and by introducing costs and distortions on local government-dependent firms. The political misallocation of resources across firms plays a seemingly secondary role, indicating that at the local level most rents are captured by politicians and public officials rather than firms.
    Keywords: Corruption; Firms; Audits; Public Procurement; Misallocation; Labor Reallocation; Political Connections
    JEL: D73 H83 D22
    Date: 2019–10

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