nep-acc New Economics Papers
on Accounting and Auditing
Issue of 2021‒02‒01
seventeen papers chosen by

  1. Who does and doesn’t pay taxes? By Advani, Arun
  2. Key Features of Captive Financial Institutions and Money Lenders (sector S127) in Luxembourg By Gabriele Di Filippo; Frédéric Pierret
  3. What do bankrupcty prediction models tell us about banking regulation? Evidence from statistical and learning approaches By Pierre Durand; Gaëtan Le Quang
  4. Republic of Uzbekistan; Fiscal Transparency Evaluation By International Monetary Fund
  5. Jordan; Technical Assistance Report-Monetary and Financial Statistics Mission By International Monetary Fund
  6. The impact of tax and infrastructure competition on the protability of local firms By Yutao Han,; Patrice Pieretti; Giuseppe Pulina
  7. A study of social policies based on the example of the Bulgarian hotels on the Black Sea coast By Georgieva, Daniela; Georgieva, Teodora
  8. Riskwork in the construction of Heathrow Terminal 2 By Rebecca Vine
  9. Republic of Armenia; Fiscal Transparency Evaluation By International Monetary Fund
  10. Non-Financial Reporting - A Step Towards Improving The Sustainability Of The Wood-Based Industries By Atanasov, Atanas
  11. Republic of Uzbekistan; Strengthening Fiscal Transparency By International Monetary Fund
  12. Colombia; Selected Issues By International Monetary Fund
  13. The Financial Market Effects of Unwinding the Federal Reserve’s Balance Sheet By Andrew Lee Smith; Victor J. Valcarcel
  14. Who Carries the Burden of the Value-Added Tax? Evidence from Germany By Samina Sultan
  15. Republic of Lithuania; Fiscal Transparency Evaluation By International Monetary Fund
  16. Guinea; Technical Assistance Report-Report on Technical Assistance Mission on External Sector Statistics By International Monetary Fund
  17. Development and Decay: Political Organization, Economic Conditions, and Municipal Corruption in Puerto Rico, 1952-2015 By Gustavo J. Bobonis; Luis Raúl Cámara Fuertes; Harold J. Toro; Julie Wilson

  1. By: Advani, Arun (University of Warwick, CAGE, and IFS)
    Abstract: We use administrative tax data from audits of self-assessment tax returns to understand what types individuals are most likely to be non-compliant. Non-compliance is common, with one-third of taxpayers underpaying by some amount, although half of aggregate under-reporting is done by just 2% of taxpayers. Third party reporting reduces non-compliance, while working in a cash-prevalent industry increases it. However, compliance also varies significantly with individual characteristics: non-compliance is higher for men and younger people. These results matter for measuring inequality, for understanding taxpayer behaviour, and for targeting audit resources.
    Date: 2020
  2. By: Gabriele Di Filippo; Frédéric Pierret
    Abstract: The paper provides insights into captive financial institutions and money lenders (sector S127) in Luxembourg. To this end, the paper relies on two metrics: the total assets and the total number of S127 entities. The analysis breaks down the evolution of both metrics across various dimensions: by main economic activity performed by the groups owning S127 entities, by nationality of the groups, by geographical counterpart of the balance sheet of S127 entities, by balance sheet item and by type of S127 firm. The period covers Dec. 2014 - Dec. 2019. Given data availability, the analysis relies on a sub-sample of the whole population of S127 firms. This sub-sample features S127 firms whose total assets are at least equal to EUR 500 million. As of Dec. 2018, this sub-sample represents about 5% of the total number of S127 firms in Luxembourg, and about 85% of the total assets held by S127 firms in Luxembourg. Results show that groups resorting to S127 entities perform various economic activities. Groups undertaking nonfinancial activities account for 80% of the total assets held by S127 entities and 70% of the total number of S127 entities. The remaining share relates to groups involved in financial activities. Across economic activities, the finance and insurance industry - and notably investment funds - holds the most important share of assets and number of entities in the sample of S127 firms. Groups headquartered in the United States own the major share of S127 entities, whether in terms of total assets or number of S127 entities. Luxembourg represents the most important balance sheet counterpart of S127 entities, suggesting that groups own several captive financial institutions in Luxembourg. The predominant financing means in the aggregated balance sheet of S127 entities mainly relate to equity and debt both as direct investment. The most important type of S127 entities are holding entities, followed by intragroup lending corporations and mixed structures. The dynamic analysis shows that total assets held by S127 entities increased over the period Dec. 2014 - June 2017 and decreased from July 2017 to Dec. 2019. The total number of S127 entities rose over the period Dec. 2014 - Nov. 2018 and declined between Dec. 2018 and Dec. 2019. The main contributors underlying these dynamics differ in terms of magnitude and sign over time, depending on the main economic activity performed by the groups owning S127 entities, the nationality of the groups, the balance sheet counterpart of S127 entities, the balance sheet item and the type of S127 firm. The main motive driving the expansion phase of the number of S127 entities before Dec. 2018 relates to entities created in the past and whose total assets increased above the EUR 500 million reporting threshold. The main motives driving the decrease in the number of S127 entities after Dec. 2018 pertain to S127 entities whose total assets fell below the EUR 500 million reporting threshold but that are still operating, and to liquidations of S127 entities.
    Keywords: Captive financial institutions and money lenders, Sector S127, Multinational Enterprises (MNEs), Ownership chains, Organizational structure
    JEL: C80 C81 L22
    Date: 2020–12
  3. By: Pierre Durand; Gaëtan Le Quang
    Abstract: Prudential regulation is supposed to strengthen financial stability and banks' resilience to new economic shocks. We tackle this issue by evaluating the impact of leverage, capital, and liquidity ratios on banks default probability. To this aim, we use logistic regression, random forest classification, and artificial neural networks applied on the United-States and European samples over the 2000-2018 period. Our results are based on 4707 banks in the US and 3529 banks in Europe, among which 454 and 205 defaults respectively. We show that, in the US sample, capital and equity ratios have strong negative impact on default probability. Liquidity ratio has a positive effect which can be justified by the low returns associated with liquid assets. Overall, our investigation suggests that fewer prudential rules and higher leverage ratio should reinforce the banking system's resilience. Because of the lack of official failed banks list in Europe, our findings on this sample are more delicate to interpret.
    Keywords: Banking regulation ; Capital requirements ; Basel III ; Logistic ; Statistical learning classification ; Bankruptcy prediction models.
    JEL: C44 G21 G28
    Date: 2021
  4. By: International Monetary Fund
    Abstract: This Fiscal Transparency Evaluation report highlights that Uzbekistan is embarking on a comprehensive reform program to strengthen public financial management and fiscal transparency. Wide-ranging reforms to improve the coverage, reliability, quality, and accessibility of fiscal reports are being developed and implemented, and some good progress already made. This assessment of fiscal transparency practices has been undertaken to support the government’s efforts to increase transparency by identifying priority areas for reform. An evaluation of practices against the IMF’s Fiscal Transparency Code (the Code) finds that tangible gains have been made over 2017 and 2018. In several areas where Uzbekistan’s practices do not currently meet the basic standard required under the Code, quick progress can be made. The report also provides a more detailed evaluation of Uzbekistan’s fiscal transparency practices and recommended reform priorities. Strengthening legislative oversight of the state budget with a view to reducing the extent to which in-year changes can be made to aggregate expenditures without prior parliamentary approval.
    Keywords: Budget planning and preparation;Expenditure;Fiscal risks;Budget execution and treasury management;Fiscal reporting;ISCR,CR,execution report,State budget,balance sheet,annual budget,budget balance,central government
    Date: 2019–05–01
  5. By: International Monetary Fund
    Abstract: This Technical Assistance report on Jordan discusses that financial system of Jordan is dominated by other depository corporations (ODC), which constitute around 63 percent of the financial system’s assets. The technical assistance mission delivered objectives and agreed with the authorities on an action plan to improve the country’s monetary statistics. Some progress has been made in the Central Bank trial accounts regarding the sectorization and classification of the financial instruments. The Central Bank of Jordan (CBJ) has made substantive progress in improving human resource skills among staff. The accounting principles are found to be broadly in line with the methodology of the IMF with some departures related to market valuation. The accounting and valuation methodology implemented by the ODCs in Jordan are broadly in line with the recommended compilation practices identified in the Monetary and Financial Statistics Manual and Compilation Guide. Considering the change in the source data since 2014, the mission re-mapped the source data, using data from the aggregated balance sheet of the banking sector and the accompanying schedules through a bridge table. The mission built a time series for all the required data and created a tool linking the data to the Standardized report forms. The tool provides CBJ staff with a simpler method for data compilation.
    Keywords: Financial instruments;Financial statements;Business enterprises;Commercial banks;Financial statistics;ISCR,CR,CBJ source data,CBJ trial,CBJ supervision,CBJ staff
    Date: 2019–05–21
  6. By: Yutao Han,; Patrice Pieretti; Giuseppe Pulina
    Abstract: International capital mobility intensifies tax competition between jurisdictions. However, many firms only operate domestically and are internationally immobile. This paper aims to analyze the effect of tax competition on the profitability of local (immobile) firms, especially when tax and non-tax instruments, including infrastructure provision, are involved. We show that tax competition decreases investment and profit of local firms when internationally mobile fims do not benefit suficiently from local infrastructure.
    Keywords: Local firms, multinational rms, tax competition, infrastructure competition, tax harmonization.
    JEL: F21 F23 H25 H26
    Date: 2020–11
  7. By: Georgieva, Daniela; Georgieva, Teodora
    Abstract: Research background: The implications of globalisation for social policy have been highly debated at the specialised literature. Social policies as an element of corporate responsibility reports (CSR) is neglected compared to environmental information. This can have a negative effect on the sustainability and development of industries directly dependent on their staff. Such sector in Bulgaria is the tourism where at the national level, the main challenge is the adequate parallel development of human resources as they underlie tourist product construction and development. Purpose of the article: The main aim of the study is to analyse factors that impact on the disclosed staff-related social policies at the financial statements of hotel enterprises in the territory of Varna and Burgas Black Sea regions in Bulgaria. The factors under analyses are the size of the organisation, available external audit control, available foreign participation in the capital, applicable accounting standards, accounted result (profit or loss); enterprise category. Methods: The adopted research methods are logical, deductive and comparative methods, methods of analysis and synthesis. To verify the author hypotheses the IBM – SPSS Statistics software is used. Findings & Value added: The results of the study show that comparatively high percentage of the enterprises do not publish staff-related information. This could lead to harmful effects to globalisation based on asymmetry in the data, problems with recruitment of qualified staff, unjustified economic decisions by data users. From all factors, under review, the strongest calculated statistic relationship is between the external audit control and staff-related disclosures.
    Keywords: Disclosures; Social Policy; Staff; Hotel Enterprises; Factors; Financial Statements
    JEL: M14 M48 M49
    Date: 2020
  8. By: Rebecca Vine (University of Sussex Business School)
    Abstract: The failure to manage risk in large-scale infrastructure projects has attracted intense debate. Recommendations suggest rigorous planning and once the contract is in place, the narrative of accountgiving emphasises constructing audit trails to assure delivery commitments. However, this can lead to blame avoidance and boundary preservation. This paper develops an in-depth case study of the construction of Heathrow Terminal 2 (T2). T2 was a £2.5bn project on the Eastern Campus of Heathrow Airport that successfully opened on time and to budget, despite an initial risk management ethos that emphasised boundary preservation. This is explored through the lens of riskwork, a form of everyday maintenance work that sustained risk management practice. A process methodology revealed a diachronic pattern of riskwork phases from initial concerns about ‘one version of the truth’ to strategising with a ‘dashboard’ to a final ‘golden thread’ engaging suppliers in risk talk. Progress was sustained by paying attention to which ‘residual’ categories of risk were excluded. As the programme progressed, riskwork became less about managing compliance and more about learning from emergence. This paper demonstrates an important relationship between innovation, learning from emergence and an adaptive riskwork infrastructure. It also describes an important role for mediatory instruments such as dashboards, reports and forums in making risks visible and actionable. It has significant implications for policy recommendations that oversimplify the management of risk into a form of accountability management that mitigates risks by demanding compliance. On a theoretical level it reveals the importance of temporality and path dependency in the study of riskwork infrastructures.
    Keywords: riskwork, accountability, infrastructure, projects, residual, emergence, innovation, Heathrow
    Date: 2020–12
  9. By: International Monetary Fund
    Abstract: This paper presents Fiscal Transparency Evaluation (FTE) for Armenia. This report provides 10 recommendations aimed at further enhancing fiscal transparency in the areas prioritized. Fiscal forecasts and budgets have become more forward looking and policy oriented, with the introduction of a medium-term expenditure framework (MTEF), improved fiscal objectives, and a performance budgeting system. The report presents the assessment of fiscal transparency practices against the IMF’s Fiscal Transparency Code (FTC). Armenia’s fiscal transparency practices have strengths and weaknesses in all areas of FTC: fiscal reporting, fiscal forecasting and budgeting, and fiscal risk disclosure and management. The fiscal transparency evaluation also estimates Armenia’s public sector financial position, in order to provide a more comprehensive view of public finances. Expanding the institutional coverage of Armenia’s fiscal reports to the entire public sector would increase the deficit by 1.3 percent of gross domestic product and would have a material impact on revenue and expenditure.
    Keywords: Budget planning and preparation;Fiscal risks;Budget execution and treasury management;Expenditure;Medium-term budget frameworks;ISCR,CR,annual budget,budget documentation,central government,balance sheet,fiscal policy,real GDP
    Date: 2019–05–15
  10. By: Atanasov, Atanas
    Abstract: The aim of this paper is to justify the need of introduction an uniform practices in the disclosure of non-financial information by enterprises in the wood-based industries in order to achieve sustainable growth and development. Based on a critical analysis of existing research in this area and an analysis of the financial statements for 2018 of three of the largest Bulgarian companies in the industry, we found out that despite the importance of environmental and social issues, companies in this industry are not required to prepare a non-financial statement within the meaning of the European and Bulgarian legislation. The information disclosed in management reports and corporate websites is mainly descriptive and does not meet the requirements of the European Directive. As a result, it is argued that the enterprises in the wood-based industries that use non-financial reporting would gain competitive advantage by revealing specific features of the business model change and reporting “structured” and “tied” non-financial information to the entity's financial performance.
    Keywords: non-financial reporting; wood-based industry; sustainability; benefits; European Directive
    JEL: M00 M41 Q5
    Date: 2020–09
  11. By: International Monetary Fund
    Abstract: This paper on the Republic of Uzbekistan focuses on the fiscal transparency in the country. This report provides further guidance to support implementation of the fiscal transparency evaluation recommendations and the government’s plans to strengthen transparency. The IMF team worked with the authorities to further strengthen the application of the Government Finance Statistics Manual standards, improve the budget classification, presentation and reporting; strengthen fiscal risk disclosure and address other fiscal transparency-related issues. Steps have been taken to improve the coverage of Government Finance Statistics reports; however, further work is required. Wide-ranging reforms to improve the coverage, reliability, quality and accessibility of fiscal reports are being developed. A Presidential Decree, approved in August 2018, sets out measures to enhance budget openness and transparency, increase the engagement of citizens in the budget process, and strengthen parliamentary and public scrutiny of the budget.
    Keywords: Budget planning and preparation;Fiscal risks;Budget classification;Financial statements;Fiscal transparency;ISCR,CR,government,budget,state budget,Economy,government ownership share
    Date: 2019–05–01
  12. By: International Monetary Fund
    Abstract: This Selected Issues paper examines the impact of the Financing Law on both tax revenues and the economy. This paper assesses the main tax measures introduced by the law and their dynamic impact on tax revenue through macroeconomic transmission channels. Despite various reforms in recent years, non-oil tax revenues in Colombia remain comparatively low. The Financing Law should raise tax revenues in 2019 but will likely create shortfalls thereafter. The model-based simulations point to sizeable increases in private investment. The simulations suggest that the Law could boost medium-term growth by around 0.2 percent of GDP but will reduce tax revenues by over 1/2 percent of GDP in the medium term. The key channel is through a lower corporate burden through lower corporate income tax and allowing input credit for value added tax on capital goods. The analysis finds that the Law may boost medium-term growth by around 0.2 percent of GDP, but it may lead to future tax revenue shortfalls starting in 2020.
    Keywords: Revenue administration;Corporate income tax;Personal income tax;Value-added tax;Expenditure;ISCR,CR,VAT,revenue,tax burden,CIT,wealth tax
    Date: 2019–04–29
  13. By: Andrew Lee Smith; Victor J. Valcarcel
    Abstract: For the second time in the brief 12-year period between 2008 and 2020, central banks have once again turned to asset purchase programs to combat a global economic downturn. While balance sheet expansions have become familiar, balance sheet normalization has proven more elusive. Nevertheless, an understanding of the consequences of unwinding asset purchases is necessary for well-informed decisions over the deployment of these unconventional policy tools. This paper provides a first analysis of the financial market effects of balance sheet normalization based on the U.S. experience between 2017 and 2019. We find evidence that balance sheet normalization tightens financial conditions. Importantly, we show these effects cannot be merely characterized as quantitative easing in reverse. In particular, we find that balance sheet normalization was associated with larger liquidity effects than were evident during various phases of balance sheet expansion.
    Keywords: Monetary Policy; Balance Sheet; Liquidity Effect; Structural VAR; Financial Conditions
    JEL: E3 E4 E5
    Date: 2021–01–04
  14. By: Samina Sultan
    Abstract: The value-added tax is one of the most important tax revenue sources in many countries. However, it is sometimes considered unfair as it ultimately hits consumption, and poorer households spend a greater share of their income on consumption. But this depends on whether, and to what degree, the value-added tax is actually passed on to consumers. Exploiting an exogenous value-added tax reform in Germany, I use an event study and a differences-in-differences approach to investigate the pass-through to consumers for a wide range of commodities. On average, I find a modestly positive but statistically insignificant effect on prices. However, there are differences in tax incidence between commodity groups and anticipatory price effects well in advance of the actual implementation of the value-added tax reform.
    Keywords: consumer price index, value-added tax, tax incidence, fiscal policy
    JEL: E31 H25 H22 H31
    Date: 2020
  15. By: International Monetary Fund
    Abstract: This Fiscal Transparency Evaluation (FTE) paper on the Republic of Lithuania estimated Lithuania’s public sector financial position to take a more comprehensive view of public finances in Lithuania. While Lithuania’s overall assessment is comparable to or better than other EU Member States that have undergone an FTE, there is room for further improvement. While the Lithuanian authorities publish a large volume of fiscal reports, they are somewhat fragmented and not easily comparable. The paper also highlights that fiscal risk analysis and management also meets good or advanced practice in many areas but are slightly weaker than the other pillars of the evaluation. It is recommended to consolidate the present array of fiscal reports into a smaller number of user-friendly reports that improve the consistency and comparability of information, as well as its transparency. The report also provides a more detailed evaluation of Lithuania’s fiscal transparency practices and recommended reform priorities.
    Keywords: Budget planning and preparation;Financial statements;Fiscal risks;Expenditure;Fiscal reporting;ISCR,CR,State budget implementation report,central government,real GDP,balance sheet,gross revenue
    Date: 2019–05–03
  16. By: International Monetary Fund
    Abstract: This Technical Assistance report on Guinea addressed issues like: improvement of the surveys on migrant remittances and informal trade; perform detailed technical work to improve external sector statistics (ESS); and participation in the coordinated direct investment survey and the quarterly external debt statistics database. The mission observed that the recommendations from the previous technical assistance mission had been satisfactorily implemented. The report also describes that the timeliness of ESS, based on international standards, should be improved, mainly for the international investment position and the quarterly balance of payments statistics. In order to contribute to progress in the areas discussed in the report, the mission made a one-year detailed action plan, with priority given to the recommendations of importance in improving ESS. The recommendation on reporting reinvested earnings of direct investment enterprises, net increases in insurance company liabilities, and income on reserve assets has partially been implemented.
    Keywords: Balance of payments statistics;External sector statistics;Financial account;Foreign direct investment;Mining sector;ISCR,CR,DSBP,company,BCRG,center
    Date: 2019–05–01
  17. By: Gustavo J. Bobonis; Luis Raúl Cámara Fuertes; Harold J. Toro; Julie Wilson
    Abstract: Corruption has been a salient feature of Puerto Rico (PR)’s modern history. However, systematic empirical research on this subject has been generally lacking. In this paper, we examine trends and patterns in municipal government malfeasance and corruption during a period spanning over six decades. Using data from all municipal audit reports conducted by the PR Office of the Comptroller between 1952 through 2015, we characterize patterns of corruption across three periods of change that altered governance practices in the territory: the time of hegemonic dominance of the Partido Popular Democrático (PPD), the era of intense political competition between the PPD and the pro-statehood Partido Nuevo Progresista (PNP), and the final collapse of the territory’s institutional model. We show that institutions and political practices, as opposed to economic determinants, play a key role in explaining corruption patterns. We argue that corruption patterns can be explained through the lens of politics in divided and polarized societies.
    Keywords: corruption; clientelist politics; anti-corruption audits; accountability; political polarization; divided societies
    JEL: D72 D74 J15 O17
    Date: 2021–01–22

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