nep-acc New Economics Papers
on Accounting and Auditing
Issue of 2020‒05‒11
five papers chosen by

  1. Spike in 2019Q1 Leverage Ratios: The Impact of Operating Leases By Berardino Palazzo; Jie Yang
  2. Hometown Ties and the Quality of Government Monitoring: Evidence from Rotation of Chinese Auditors By Jian Chu; Raymond Fisman; Songtao Tan; Yongxiang Wang
  3. Does the US Tax Code Favor Automation? By Daron Acemoglu; Andrea Manera; Pascual Restrepo
  4. Inflation expectations and consumer spending: the role of household balance sheets (RM/19/022-revised-) By Lieb, Lenard; Schuffels, Johannes
  5. Reforming Tax and Welfare: Social Justice and Recovery after the Pandemic By FitzRoy, Felix; Jin, Jim

  1. By: Berardino Palazzo; Jie Yang
    Abstract: In this note, we show that the key driver of the 2019:Q1 increase in the leverage ratio appears to be a change in accounting rules – which requires the inclusion of operating leases as financial liabilities on U.S. corporations' balance sheets – and also provide a methodology for adjusting the leverage ratio to allow for cleaner historical comparisons.
    Date: 2019–12–13
  2. By: Jian Chu; Raymond Fisman; Songtao Tan; Yongxiang Wang
    Abstract: Audits are a standard mechanism for reducing corruption in government investments. The quality of audits themselves, however, may be affected by relationships between auditor and target. We study whether provincial chief auditors in China show greater leniency in evaluating prefecture governments in their hometowns. In city-fixed-effect specifications – in which the role of shared background is identified from auditor turnover – we show that hometown auditors find 38 percent less in questionable monies. This hometown effect is similar throughout the auditor’s tenure, and is diminished for audits ordered by the provincial Organizations Department as a result of the departure of top city officials. We argue that our findings are most readily explained by leniency toward local officials rather than an endogenous response to concerns of better enforcement by hometown auditors. We complement these city-level findings with firm-level analyses of earnings manipulation by state-owned enterprises via real activity manipulation (a standard measure from the accounting literature), which we show is higher under hometown auditors.
    JEL: D73 G3 H83 M42
    Date: 2020–04
  3. By: Daron Acemoglu; Andrea Manera; Pascual Restrepo
    Abstract: We argue that the US tax system is biased against labor and in favor of capital and has become more so in recent years. As a consequence, it has promoted inefficiently high levels of automation. Moving from the US tax system in the 2010s to optimal taxation of capital and labor would raise employment by 4.02% and the labor share by 0.78 percentage points, and restore the optimal level of automation. If moving to optimal taxes is infeasible, more modest reforms can still increase employment by 1.14–1.96%, but in this case efficiency can be increased by imposing an additional automation tax to reduce the equilibrium level of automation. This is because marginal automated tasks do not bring much productivity gains but displace workers, reducing employment below its socially optimal level. We additionally show that reducing labor taxes or combining lower capital taxes with automation taxes can increase employment much more than the uniform reductions in capital taxes enacted between 2000 and 2018.
    JEL: J23 J24
    Date: 2020–04
  4. By: Lieb, Lenard (RS: GSBE Theme Data-Driven Decision-Making, General Economics 2 (Macro)); Schuffels, Johannes (RS: GSBE Theme Data-Driven Decision-Making, General Economics 2 (Macro))
    Abstract: Research interest in the reaction of consumption to expected inflation has increased in recent years due to efforts by central banks to kick-start demand by steering inflation expectations. We contribute to this literature by analysing whether various components of households’ balance sheets determine how consumption reacts to expected inflation. Two channels in particular are conceivable: an increase in inflation expectations can raise consumption through direct increases in expected real wealth, e.g. for households with nominal financial liabilities. By affecting the real interest rate, expected inflation can interact with wealth if only those households can adapt their consumption to current real interest rates that are not budget constrained or sufficiently liquid to shift funds between consumption and savings. We investigate these channels empirically using household-level information on balance sheets, durable consumption, and inflation expectations from the Dutch Central Bank’s Household Survey. We find that household net worth moderates the relation between expected inflation and durable spending decisions. This effect is particularly strong for households with fixed interest rate mortgages.
    JEL: D84 E31 E21
    Date: 2020–03–02
  5. By: FitzRoy, Felix (University of St. Andrews); Jin, Jim (University of St. Andrews)
    Abstract: Capital income subsidies, and reliance on indirect consumption taxes have created an increasingly regressive overall tax system in the UK, US and elsewhere, with proportionately much greater impact on the poor than on the rich, and welfare cuts under ten years of austerity have had the largest impact on the most vulnerable and poorest, now magnified by the Covid-19 pandemic. We show how a progressive wealth tax combined with a uniform, linear tax on all incomes and a modest basic income, with no exemptions or reliefs and no indirect taxes except excise taxes such as fuel duties, could be highly progressive overall, as well as much fairer and simpler than the present system. Such reform would render the economy much more resilient, and potentially devastating economic consequences of the pandemic could be mitigated by an emergency basic income and suspension of rental payments.
    Keywords: COVID-19, tax, welfare, policy, pandemic
    JEL: H2 I3
    Date: 2020–05

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