nep-acc New Economics Papers
on Accounting and Auditing
Issue of 2021‒03‒15
six papers chosen by

  1. Do audits improve future tax compliance in the absence of penalties? Evidence from random Audits in Norway By Shafik Hebous; Zhiyang Jia; Knut Løyland; Thor O. Thoresen; Arnstein Øvrum
  2. Who Truly Bears (Bank) Taxes? Evidence from Only Shifting Statutory Incidence By Gabriel Jiménez; David Martínez-Miera; José-Luis Peydró
  3. Taxes and business philanthropy in Armenia By Asatryan, Zareh; Joulfaian, David
  4. The Implications of Social Networks on the Quality of Accounting Information By Xu, Feng C.
  5. The Economic Geography of Ottoman Anatolia: People, Places, and Political Economy around 1530 By Metin M. Cosgel; Sadullah Yıldırım
  6. Accepting the Future as Unforeseeable: Sensemaking by Professionals in the Rise of Artificial Intelligence By Masashi Goto

  1. By: Shafik Hebous; Zhiyang Jia (Statistics Norway); Knut Løyland; Thor O. Thoresen (Statistics Norway); Arnstein Øvrum
    Abstract: The Norwegian Tax Administration operated multi-year random audits of personal income tax returns. We exploit this exceptional randomized setup to estimate the effects of tax audits on future compliance explicitly distinguishing between dynamic responses of compliant and noncompliant audited taxpayers. A priori, the literature has suggested two competing effects: A post-audit deterrence effect—whereby audits prompt taxpayers to comply in subsequent years—or a “bombcrater” effect—whereby audits lower taxpayers’ subjective probability of detecting future evasion and hence weaken compliance. Our results show improved future compliance for five post-audit years by those that were found noncompliant in the audits, despite the absence of penalty, suggesting that it is not the monetary payment per se that carries a deterrence effect. Those that were found compliant, however, show no signs of behavioral adjustments. Although the findings are consistent with the deterrence effect, mainly stemming from being caught of wrongdoing rather than a penalty, we argue that there is also a “learning” effect with the important implication that better information for taxpayers critically complements tax audits.
    Keywords: Tax administration; tax evasion; tax compliance; tax audits; administrative data
    JEL: H26 C23
    Date: 2020–11
  2. By: Gabriel Jiménez (Banco de España); David Martínez-Miera (Universidad Carlos III de Madrid and CEPR); José-Luis Peydró (Imperial College London, ICREA, Universitat Pompeu Fabra, CREI, Barcelona GSE, and CEPR)
    Abstract: We show strong overall and heterogeneous economic incidence effects, as well as distortionary effects, of only shifting statutory incidence (i.e., the agent on which taxes are levied), without any tax rate change. For identification, we exploit a tax change and administrative data from the credit market: (i) a policy change in 2018 in Spain shifting an existing mortgage tax from being levied on borrowers to being levied on banks; (ii) some areas, for historical reasons, were exempt from paying this tax (or have different tax rates); and (iii) an exhaustive matched credit register. We find the following robust results: First, after the policy change, the average mortgage rate increases consistently with a strong – but not complete – tax pass-through. Second, there is a large heterogeneity in such pass-through: larger for borrowers with lower income, a smaller number of lending relationships, not working for the lender, or facing less banks in their zip-code, thereby suggesting a bargaining power mechanism at work. Third, despite no variation in the tax rate, and consistent with the non-full tax pass-through, the tax shift increases banks’ risk-taking. More affected banks reduce costly mortgage insurance in case of loan default (especially so if banks have weaker ex-ante balance sheets) and expand into non-affected but (much) ex-ante riskier consumer lending, experiencing even higher ex-post defaults within consumer loans.
    Keywords: taxes, incidence, banks, inequality, risk-taking, mortgages
    JEL: E51 G21 G28 G51 H22
    Date: 2020–12
  3. By: Asatryan, Zareh; Joulfaian, David
    Abstract: The majority of countries around the world provide tax incentives for business philanthropy. However, little is known about the responsiveness of businesses to this tax treatment. This paper expands on this scant literature by focusing on the Armenian tax system which provides incentives for business philanthropy. The support takes the form of a deduction capped at a fraction of business receipts. This generates a kink beyond which the marginal tax subsidy drops to zero. Using administrative panel data for the years 2007 through 2017, we find strong evidence of bunching by Armenian firms at the kink, with a sizeable tax elasticity of giving at the intensive margin. The evidence on bunching is robust to whether firms have been audited, and to whether any tax deficiencies are observed. This suggests that the observed response is likely to be real rather than being driven by reporting responses.
    Keywords: Business philanthropy,charitable giving,corporate income taxes,firm behavior,bunching,tax-price elasticity
    JEL: H25 H32 M14
    Date: 2021
  4. By: Xu, Feng C.
    Abstract: The information technology (IT) revolution has shown widespread and massive development in communications and social networks, leading to the use of this technology daily. As a result, a number of Accounting features were added and turned into an E-version from a traditional version. This paper submits a study of the social network's role in growing the quality of accounting information by evaluating it according to distributed questionnaires. The researchers distributed 20 questionnaires on 20 academic persons and analyzed the results via excel tools, and the main result of this paper is that the Social networks have a big effect on the accounting information because they will build a good background for the accountants.
    Date: 2021–03–03
  5. By: Metin M. Cosgel (University of Connecticut); Sadullah Yıldırım (Marmara University)
    Abstract: We use GIS data and information from the tax registers of the Ottoman Empire to study the economic geography of Ottoman Anatolia in the sixteenth century, soon after the vast expansion of the empire in Asian territories. For a consistent and systematic account of resources and activities, we use data from the official accounting registers (muhasebe defteri) of the empire recorded around the year 1530, available at the district (kaza) level from the State Archives in Turkey. The accounting registers include detailed information regarding the amounts and essential features of the inhabitants and resources of the empire, especially in relation to the fiscal and administrative capacity of the state. Since the data are given at the level of the district, we use the name of the district to georeference its location, calculate district-level values of several representative indicators, and use GIS software to display the geographic dispersion of these indicators on maps. Regarding people, we determine the total number of taxpaying inhabitants in a district and the fractions of inhabitants who were non-Muslims and those exempt from taxation. In the same vein, we use the information regarding productive resources to calculate the numbers of mills, caravanserais, and markets in each district. Finally, as an indicator of political economy constraints that the Ottomans faced in newly conquered territories, we provide information regarding the spatial implementation of the malikane-divani system, an unusual method of dividing tax revenues between the state and local private recipients (mülk, vakıf).
    JEL: N15 N35 N45 N75 N95
    Date: 2021–03
  6. By: Masashi Goto (Research Institute for Economics and Business Administration, Kobe University, JAPAN)
    Abstract: The disruptive influence of digitalisation on professions has been actively debated. This study analyses the nature of professionals' sensemaking with the rise of artificial intelligence (AI). I conducted a qualitative study with interview and archival data on a Big Four audit firm in Japan as they considered the application of AI to their core audit service in 2017–2019. The study discovers three themes in the professionals' sensemaking: monitoring environmental change, evolving future blueprints and learning through experimentation. It also shows their acceptance of the future as inherently unforeseeable and their perception of endless sensemaking as a resolution to cope with the excessive environmental complexity. In their sensemaking, institutional factors—audit standards, societal expectations and trends in other firms—played an important role in setting what is acceptable in technology use, while technological factors set what is possible. The professionals continue to explore what the unique value of humans is against machines and what stays legitimate to sustain their profession. With these findings, this article contributes to the literature of sensemaking and professions by discussing implications of this distinct and important perception mode.
    Keywords: Prospective sensemaking; Occupations and Professions; Qualitative research methods
    Date: 2021–03

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