nep-acc New Economics Papers
on Accounting and Auditing
Issue of 2020‒04‒13
seven papers chosen by

  1. [WTO Case Review Series No.29] Brazil – Certain Measures Concerning Taxation and Charges (DS472, DS497): Scope of the WTO law on Discriminatory Tax Exemption Measures (Japanese) By TOJO Yoshizumi
  2. Law of conservation of real wealth and rising inequality By Yashin, Pete
  3. Distance in Bank Lending: The Role of Social Networks By Oliver Rehbein; Simon Rother
  4. Macroprudential Policies and Current Account Balance By Ekinci, Mehmet Fatih
  5. Revenue-Neutral Tax Reform in Vertically Related Markets By Kenji Fujiwara
  6. Quantifying the Effect of Corporate Taxes on the Life Cycle of Firms By Neira, Julian; Singhania, Rish
  7. Results and discussion of "Survey on SME preparations for natural disasters and support by regional financial institutions" (Japanese) By YAMORI Nobuyoshi; OGAWA Hikaru; YANAGIHARA Mitsuyoshi; HARIMAYA Kozo; TSUBUKU Masafumi; OZAKI Yasufumi; AIZAWA Tomoko; UMINO Shingo; ASAI Yoshihiro; HASHIMOTO Norihiro

  1. By: TOJO Yoshizumi
    Abstract: In this dispute, the WTO-consistency of certain tax measures adopted by Brazil through various programs aimed at the ICT and automotive sectors as well as export promotion are at issue. Main aspects of the measures at issue include that, in order to benefit from the tax treatment, companies must obtain an accreditation in accordance with the programs, which requires: (a) to produce the goods in compliance with the relevant Basic Productive Processes (PPBs) for the ICT sector and the automotive sector, or (b) gross revenue derived from exports to exceed 50% of its total gross revenue. The Appellate Body agreed with the Panel's finding on inconsistency with Article III:2 and III:4 of the GATT 1994, whereas the separate opinion of one Appellate Body Member on Article III:8(b) was presented. As to interpretation of the provisions of the SCM Agreement, the Appellate Body reversed the Panel's finding on two legal issues: (i) the normative benchmark of "revenue forgone" requirement in Art. 1.1(a)(1)(ii), and (ii) application of "contingency" requirement in Art. 3.1(b). When the measures at issue are those internal tax exemptions/reductions created in order to protect national industries or foster exports, which include complicated combinations of accreditation systems and PPBs, the panel and the Appellate Body face difficulties in applying WTO subsidy regulations. This case shows a certain limitation in applying the WTO rules to Members' tax measures.
    Date: 2019–12
  2. By: Yashin, Pete
    Abstract: Nonfinancial and financial capital conflated in modern economy. Using accounting approach we separated them and compared the corresponding total values of nonfinancial capital and wealth. We consider these values to be equal. This statement is named “law of conservation of real wealth”: real value of aggregate wealth is equal to the total value of nonfinancial assets. The law holds automatically by virtue of balance sheet identity, if financial assets’ value equal to the counterpart obligations securing them. However such equality can be violated when securities freely circulating in modern financial markets lose their link with corresponding obligations. The resulting difference is equal to the divergence between the aggregate wealth and total value of nonfinancial assets, which indicates a violation of the law in nominal terms. We consider this divergence as excess unsecured component of wealth, whereas the real wealth continues to match the nonfinancial assets’ value. Such unsecured wealth can only arise due to discrepancy between savings and investment, along with difference between total Haig–Simons income (including capital gains) and expenditures in real sector. It makes impossible to display correctly flows simultaneously with stocks. Deviations of securities' value from corresponding obligations commonly accepted as temporary. However, along with cyclical fluctuations the unsecured US financial assets value has been steadily growing since the 1980s, exceeding $11 trillion in 2016. We consider the observed nominal violation of the law of conservation of wealth is a consequence of unlimited capitalists’ enrichment aspirations. Marketable securities are the tools they use to embody such desire; the effect enhanced by the procedures of corporate mergers and acquisitions. Yet, the unsecured wealth inflate financial bubbles; its growth turns out a sufficient condition for wealth and income inequality rising. Then the aggregate consumer demand growth is hindered, and appetite for capital investment decreases. Unsecured component of capitalists’ profit is absorbed by an (unsecured) increase in the value of financial assets; it is not a source of capital investment; on the contrary, high financial returns contribute to crowding out investment from the real sector. Productivity growth slows down. Thus, increase in inequality reduces both aggregate demand and supply, which inhibits economic growth. US statistics confirms the above trends which led to the global crisis of 2007-2008. It has not cured the economy; unsecured wealth continues to grow increasing inequality, which dumps output growth. Black swans in 2020 have inspired inevitable arriving of new crisis.
    Keywords: capital; wealth; inequality; accounting identity; Haig–Simons income; crises;
    JEL: E01 G10
    Date: 2020–03–25
  3. By: Oliver Rehbein; Simon Rother
    Abstract: This paper provides empirical evidence that banks leverage social connections as an information channel. Using county-to-county friendship-link data from Facebook, we find that strong social ties increase loan volumes, especially if screening incentives are large. This effect is distinct from physical and cultural distances. Physical distance becomes significantly less relevant when accounting for social connections. Moreover, sufficiently strong social ties prevent cultural differences from constituting a lending barrier. The effect of social connectedness is more supply-side driven for small banks but demand-side driven for large banks. To bolster identification, we exploit highway connections, historical travel costs, and the quasi-random staggered introduction of Facebook as instruments. Our results reveal the important role of social connectedness as an information channel, speak to the nature of borrowing constraints, and point toward implications for bank-lending strategies and anti-trust policies.
    Keywords: bank lending, social networks, information frictions, culture, distance
    JEL: D82 D83 G21 O16 L14 Z13
    Date: 2020–03
  4. By: Ekinci, Mehmet Fatih
    Abstract: Macroprudential policies have become essential tools for the policy makers in order to maintain financial stability. Effectiveness of these policies has been studied by a growing literature with an emphasis on the impact of the policies on target variables such as credit growth and asset price appreciations. In this paper, we investigate the impact of macroprudential policies on the current account balance considering the link between external imbalances and financial stability. Building on a standard empirical current account model, we show that usage of an additional macroprudential instrument is associated with an improvement in the current account balance. Moreover, our results indicate that positive impact of macroprudential policy measures on the current account balance is stronger in the deficit countries compared to the surplus countries.
    Keywords: Global Imbalances, Current Account Balance, Macroprudential Policies and Panel Data.
    JEL: C33 E58 F32 G18 G28
    Date: 2020–04–05
  5. By: Kenji Fujiwara (School of Economics, Kwansei Gakuin University)
    Abstract: This paper examines the effects of a tax reform when final goods are produced in an oligopoly and intermediate goods are produced in monopolistic competition. In particular, we address the effect of a shift from upstream to downstream taxation that leaves government revenue unchanged. This tax reform raises the consumer and producer prices of final goods, lowers the demand price of intermediate goods, and has no effect on the producer price of intermediate goods. Finally, we find that welfare improves with this tax reform.
    Keywords: Final Goods, Intermediate Goods, Oligopoly, Monopolistic Competition, Tax Incidence, Welfare
    JEL: D43 H21 H22 L13
    Date: 2020–04
  6. By: Neira, Julian; Singhania, Rish
    Abstract: How does corporate taxation affect the life cycle of firms? A change in profit-tax rates affects the life cycle of firms through wages and through firm selection. We quantify these effects by looking at the average size of young and mature US firms 30 years after the Reagan Tax Cuts. We disentangle the wage and the selection effects using a model of firm dynamics. We find that the wage effect of profit tax cuts is about six times stronger than the selection effect. A change in population growth affects average firm size by changing the composition of surviving firms. We find that the effect of declining population growth on average firm size is three times stronger for mature firms than for young firms.
    Keywords: Incidence; Corporate Taxation; Firm Lifecycle; Calibration
    JEL: E13 H22 H25 H32 L16 L26
    Date: 2020–03–19
  7. By: YAMORI Nobuyoshi; OGAWA Hikaru; YANAGIHARA Mitsuyoshi; HARIMAYA Kozo; TSUBUKU Masafumi; OZAKI Yasufumi; AIZAWA Tomoko; UMINO Shingo; ASAI Yoshihiro; HASHIMOTO Norihiro
    Abstract: Preparing for frequent natural disasters is necessary to increase the sustainability of small and medium-sized enterprises. The SME Strengthening Act, established in 2019, aims to promote BCP (Business Continuity Plan) formulation for small and medium-sized enterprises. As stipulated in the Act, regional financial institutions are expected to play an essential role in promoting cooperation among various organizations and institutions that support SMEs. On the other hand, regional financial institutions are making efforts to strengthen their ability to assess the business feasibility of SMEs, and they can provide BCP development support based on their close relationship with customers. However, sufficient research has not been conducted on the status of efforts to support BCP formulation by regional financial institutions. Therefore, in May 2019, our research team conducted a questionnaire survey of 7,000 branch managers of regional financial institutions and received responses from 2,623 individuals. The purpose of this paper is to introduce the primary findings. The main results were as follows. (1) Few financial institutions have a firm grasp of the status of BCP formulation at their client SMEs. (2) Few financial institutions have encouraged client SMEs to formulate BCPs. (3) Financial institutions are not aware of the credit guarantee program related to BCP and reconstruction support funds. (4) Financial institutions also poorly understand local governments' BCP support measures. On the other hand, (5) Efforts for the business feasibility assessments, in general, have progressed, and staff capabilities have improved. (6) Significant reforms have been made in the personnel evaluation system for that purpose. (7) There has also been some progress in collaboration with external institutions such as credit guarantee corporations, the Japan Finance Corporation, and tax accountants. The challenge now is how to incorporate the perspective of the need for business resilience against natural disasters, through efforts such as BCP formulation, into the above initiatives based on business feasibility assessments.
    Date: 2020–01

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