nep-acc New Economics Papers
on Accounting and Auditing
Issue of 2020‒03‒09
five papers chosen by
Alexander Harin
Modern University for the Humanities

  1. VAT Compliance Incentives By Maria-Augusta Miceli
  2. Small firms and patenting revisited By Athreye, Suma; Fassio, Claudio; Roper, Stephen
  3. Shadow effect from Laffer tax allergy: New tax policy tool to fight tax evasion By DOMBOU T., Dany R.
  4. icio : Economic Analysis with Inter-Country Input-Output Tables in Stata By Belotti,Federico; Borin,Alessandro; Mancini,Michele
  5. Dutch Shell Companies and International Tax Planning By Arjan Lejour; Jan Möhlmann; Maarten van 't Riet; Thijs Benschop

  1. By: Maria-Augusta Miceli
    Abstract: In this work I clarify VAT evasion incentives through a game theoretical approach. Traditionally, evasion has been linked to the decreasing risk aversion in higher revenues (Allingham and Sandmo (1972), Cowell (1985) (1990)). I claim tax evasion to be a rational choice when compliance is stochastically more expensive than evading, even in absence of controls and sanctions. I create a framework able to measure the incentives for taxpayers to comply. The incentives here are deductions of specific VAT documented expenses from the income tax. The issue is very well known and deduction policies at work in many countries. The aim is to compute the right parameters for each precise class of taxpayers. VAT evasion is a collusive conduct between the two counterparts of the transaction. I therefore first explore the convenience for the two private counterparts to agree on the joint evasion and to form a coalition. Crucial is that compliance incentives break the agreement among the transaction participants' coalition about evading. The game solution leads to boundaries for marginal tax rates or deduction percentages, depending on parameters, able to create incentives to comply The stylized example presented here for VAT policies, already in use in many countries, is an attempt to establish a more general method for tax design, able to make compliance the "dominant strategy", satisfying the "outside option" constraint represented by evasion, even in absence of audit and sanctions. The theoretical results derived here can be easily applied to real data for precise tax design engineering.
    Date: 2020–02
  2. By: Athreye, Suma (Essex Business School); Fassio, Claudio (CIRCLE, Lund University); Roper, Stephen (Warwick Business School)
    Abstract: In order to observe a patent application at the firm level two conditions need to be met: new products need to be of patentable quality, which depends both on the degree of novelty of innovations and on the total number (portfolio) of innovations; and the benefits of patents need to be higher than the costs of owning them. Analyzing the patent propensity of small and large UK firms using a novel innovation-level survey (the SIPU survey) linked to Community Innovation Survey data we find that when we consider the whole innovation portfolio smaller firms do patent less than larger firms. However, using data on individual innovations, we find that smaller firms are no less likely to patent any specific innovation than larger firms. We argue that size differences in the probability to patent relate primarily to the ‘portfolio effect’, i.e. larger firms generate more innovations than smaller firms and therefore are more likely to create one or more which are patentable. As for the decision to patent a patentable innovation, we find that cost barriers, more than issues of innovation quality or enforceability, deter small firms from patenting specific innovations. Measures to address the costs of patenting for smaller firms – perhaps by considering patents as eligible costs for R&D tax credits – and/or subsidizing SMEs’ participation in IP litigation schemes may both encourage patent use by smaller firms.
    Keywords: Patenting; SME; small firms; UK
    JEL: O32 O34 O38
    Date: 2020–02–26
  3. By: DOMBOU T., Dany R.
    Abstract: This study is inspired by the Laffer curve to develop and formalize a concept around optimal tax policy considering asymmetric information. This is the "Shadow effect". This theory states that when the tax burden is high, producers tend to inflate their fictitious expenses in order to reduce their declared profit (in order to avoid paying a high tax). The theoretical developments show that the propensity of producers to the Shadow effect is positively related to the square of tax rate. The relationship is non-linear. They also show that there is an inverse and non-linear relationship between the tax rate and the level of production. In addition, producers' sensitivity to the Shadow Effect can be influenced by fluctuating the tax burden. This study provides to governments a new fiscal policy tool. For instance, a numerical application has shown that if the Cameroonian government wants to encourage production in such a way that it could reach 50% more, it should reduce the corporate tax rate down ceteris paribus, to 16.19%.
    Keywords: Tax evasion; Tax burden; Laffer Curve; Shadow effect.
    JEL: D8 H21 H26
    Date: 2018–11
  4. By: Belotti,Federico; Borin,Alessandro; Mancini,Michele
    Abstract: Several new statistical tools and analytical frameworks have been developed recently to measure countries'and sectors'involvement in global value chains. Such wealth of methodologies reflects that different empirical questions call for distinct accounting methods, along with different levels of aggregation of trade flows. This paper is a companion to the conceptual framework presented in Borin and Mancini (2019). The paper describes a new Stata module, icio, that allows the user to construct the most appropriate measure for given empirical questions on trade in value-added and participation in global value chains of countries and sectors. By exploiting inter-country input-output tables, icio provides decompositions of aggregate, bilateral, and sectoral exports and imports according to the source and destination of their value-added content. As different measures are suited to address distinct economic questions, icio is designed to be flexible also in this respect.
    Date: 2020–02–19
  5. By: Arjan Lejour (CPB Netherlands Bureau for Economic Policy Analysis); Jan Möhlmann (CPB Netherlands Bureau for Economic Policy Analysis); Maarten van 't Riet (CPB Netherlands Bureau for Economic Policy Analysis); Thijs Benschop (CPB Netherlands Bureau for Economic Policy Analysis)
    Abstract: This paper uses the financial statements of special purpose entities (SPEs) for explaining the origin and destination of dividend, interest, and royalty flows passing the Netherlands. We find that Bermuda is the most important destination for royalty flows. These flows come from Ireland, Singapore and the United States. For dividend and interest payments the geographical pattern is more widespread. We find a substantial tax reduction for royalties by using Dutch SPEs compared to a direct flow between the origin and destination country. However, we cannot find such tax savings for dividends and interest with an approximation based on statutory tax rates. This Discussion Paper reports research on the financial flows already presented in the CPB Policy Brief of 24 January 2019: Conduit country the Netherlands in the spotlight.
    JEL: G32 H25 H32
    Date: 2019–06

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