nep-acc New Economics Papers
on Accounting and Auditing
Issue of 2021‒08‒16
ten papers chosen by

  1. Republic of Estonia: Technical Assistance Report-Fiscal Transparency Evaluation By International Monetary Fund
  2. Profit Shifting and Equilibrium Principles of International Taxation By Manon Francois
  3. Intangible Assets, Corporate Taxes and the Relocation of Pharmaceutical Establishments: The case of Puerto Rico By Zadia M. Feliciano; Meng-Ting Chen
  4. Maldives: Technical Assistance Report-Fiscal Transparency Evaluation By International Monetary Fund
  5. Accounting for COVID-19 Related Funding, Credit, Liquidity, and Loan Facilities in the Financial Accounts of the United States By Matthew Hoops; Robert J. Kurtzman
  6. The impact of complex financial instruments on banks’ vulnerability: empirical evidence on SSM banks By Tommaso Perez; Francesco Potente; Andrea Carboni; Alberto Di Iorio; Jacopo Raponi
  7. A bridge between Local GAAP and Solvency II frameworks to quantify Capital Requirement for demographic risk By Gian Paolo Clemente; Francesco Della Corte; Nino Savelli
  8. Tax Education and Tax Awareness: An Analysis on Indonesian Tax Education Program By Yulianti Abbas; Christine Tjen; Panggah Tri Wicaksono
  9. Systemic Discrimination among Large U.S. Employers By Kline, Patrick; Rose, Evan K.; Walters, Christopher R.
  10. Less information, more comparison, and better performance: evidence from a field experiment By Eyring, Henry; Ferguson, Patrick J.; Koppers, Sebastian

  1. By: International Monetary Fund
    Abstract: The government of Estonia places a high importance on openness and transparency, both for their citizens and for regional and international partners. This is evidenced from various earlier reports on transparency and the implementation of many subsequent improvements in fiscal transparency practices. The objective of the assessment was to identify areas of fiscal risk vulnerabilities and reform priorities to ensure further improvements in transparent practices.
    Date: 2021–08–06
  2. By: Manon Francois
    Abstract: We study the choice between source-based and destination-based corporate taxes in a two-country model, allowing multinational firms to use transfer pricing to allocate profits across tax jurisdictions. We show that source-based taxation is a Nash equilibrium for tax revenue maximizing jurisdictions if domestic and foreign firms generate large revenues. We also show that destination-based taxes are a Nash equilibrium when firms generate low revenues, which implies the presence of multiple equilibria. Both the source and the destination principle coexist in equilibrium when domestic and foreign corporate revenues are intermediate. However, the source principle always tax-dominates the destination principle.
    Keywords: tax competition, multinational firms, corporate taxes, transfer pricing
    JEL: F23 H00 H25 H26 H71
    Date: 2021
  3. By: Zadia M. Feliciano; Meng-Ting Chen
    Abstract: Puerto Rico operated as a tax haven under U.S. Internal Revenue Code (IRC) Section 936. Firms in the pharmaceutical industry accounted for approximately 50% of tax credits awarded and 20% of employment under the program. The U.S. Congress eliminated the tax exemption program in 2006, creating a natural experiment on the elimination of corporate taxation of intangible assets. We use panel data on establishments from the Quarterly Census of Employment and Wages and a difference in difference methodology to measure the impact of the elimination of IRC Section 936 on pharmaceutical and medical devices using establishments with low, medium and high participation in the program as controls. Survival rates of all manufacturing establishments declined after the phaseout and elimination of the tax exemption program but pharmaceutical and medical devices establishments experienced an additional 6.9% decline. Approximately 50% of the 34% decline in pharmaceutical and medical devices establishments in Puerto Rico from 1995 to 2017 can be attributed to the elimination of IRC Section 936. Employment in pharmaceutical and medical devices establishments, which also declined by 34%, decreased at the same rate as that of other industries. Plant closings accounted for most of the decline in their employment.
    JEL: F21 F23 H25 O14
    Date: 2021–07
  4. By: International Monetary Fund
    Abstract: Reflecting an ongoing commitment to enhancing fiscal transparency, Maldives is the first small island state, and the second country in Asia, to have undertaken a Fiscal Transparency Evaluation (FTE). The Government of the Maldives (GoM) recognizes the importance of transparency in fiscal management and in delivering on its ambitious policy agenda, while responding to current challenges within a tight fiscal environment. This report assesses fiscal transparency practices in Maldives against the first three pillars of the IMF’s Fiscal Transparency Code (FTC).
    Date: 2021–07–23
  5. By: Matthew Hoops; Robert J. Kurtzman
    Abstract: Beginning in late February 2020, market liquidity for corporate bonds dried up and corporate bond credit spreads soared amid broad financial market dislocations related to the COVID-19 pandemic. The causes of this liquidity dry-up and the spike in corporate bond spreads remain subjects of debate.
    Date: 2021–07–30
  6. By: Tommaso Perez (Bank of Italy); Francesco Potente (Bank of Italy); Andrea Carboni (Bank of Italy); Alberto Di Iorio (Bank of Italy); Jacopo Raponi (Bank of Italy)
    Abstract: Level 2 (L2) and Level 3 (L3) assets and liabilities represent a substantial portion of European banks’ balance sheets, and valuing them is extremely difficult, since no liquid market prices are available. This paper relies on a large panel of euro-area banks between 2014 and 2019, and two different econometric frameworks, in order to estimate the relationship between the holdings of selected instruments (L2, L3 and Non-Performing Loans, NPLs) and banks’ key performance and risk profile metrics, namely Credit Default Swaps (CDSs), Price-to-Book (PtB) ratios and Z-scores. It finds that larger holdings of L2 tend to be associated with higher CDSs, at least in the short run, while larger amounts of NPLs and L3 tend to characterize banks with higher CDSs, lower PtB ratios and worse Z-scores, other things being equal.
    Keywords: fair value accounting, level 2 instruments, level 3 instruments, non-performing loans, prudential regulation, panel data models
    JEL: G21 G28 C33 M41
    Date: 2021–07
  7. By: Gian Paolo Clemente; Francesco Della Corte; Nino Savelli
    Abstract: The paper provides a stochastic model useful for assessing the capital requirement for demographic risk. The model extends to the market consistent context classical methodologies developed in a local accounting framework. In particular we provide a unique formulation for different non-participating life insurance contracts and we prove analytically that the valuation of demographic profit can be significantly affected by the financial conditions in the market. A case study has been also developed considering a portfolio of life insurance contracts. Results prove the effectiveness of the model in highlighting main drivers of capital requirement evaluation, also compared to local GAAP framework.
    Date: 2021–07
  8. By: Yulianti Abbas (Department of Accounting, Faculty of Economics and Business, Universitas Indonesia); Christine Tjen (Department of Accounting, Faculty of Economics and Business, Universitas Indonesia); Panggah Tri Wicaksono (Department of Accounting, Faculty of Economics and Business, Universitas Indonesia)
    Abstract: This study aimed to examine the effectiveness of “Pajak Bertutur”, a tax education program in Indonesia. We analyze whether there were differences in students’ tax awareness before and after the program, and whether the results of the program were influenced by students’ familiarity with taxation. We distributed an online survey questionnaire to all students participating in the 2020 tax education program, resulting in a total of 693 responses, 461 for pre-survey and 232 for post-survey. Using multivariate regression analysis, our results suggest that students’ tax awareness level increased after the tax education program. We also found that the increase in tax awareness was greater for students who are familiar with tax authority website and those who have learned about taxation before the event. These findings thus indicate that the effectiveness of the tax education program is influenced by the students’ prior knowledge, emphasizing that a continuous tax education program is necessary to improve tax awareness.
    Keywords: tax education — — tax awareness — tax knowledge — tax inclusion
    JEL: A22 H20
    Date: 2021
  9. By: Kline, Patrick (University of California, Berkeley); Rose, Evan K. (University of Chicago); Walters, Christopher R. (University of California, Berkeley)
    Abstract: We study the results of a massive nationwide correspondence experiment sending more than 83,000 fictitious applications with randomized characteristics to geographically dispersed jobs posted by 108 of the largest U.S. employers. Distinctively Black names reduce the probability of employer contact by 2.1 percentage points relative to distinctively white names. The magnitude of this racial gap in contact rates differs substantially across firms, exhibiting a between-company standard deviation of 1.9 percentage points. Despite an insignificant average gap in contact rates between male and female applicants, we find a between-company standard deviation in gender contact gaps of 2.7 percentage points, revealing that some firms favor male applicants while others favor women. Company-specific racial contact gaps are temporally and spatially persistent, and negatively correlated with firm profitability, federal contractor status, and a measure of recruiting centralization. Discrimination exhibits little geographical dispersion, but two digit industry explains roughly half of the cross-firm variation in both racial and gender contact gaps. Contact gaps are highly concentrated in particular companies, with firms in the top quintile of racial discrimination responsible for nearly half of lost contacts to Black applicants in the experiment. Controlling false discovery rates to the 5% level, 23 individual companies are found to discriminate against Black applicants. Our findings establish that systemic illegal discrimination is concentrated among a select set of large employers, many of which can be identified with high confidence using large scale inference methods.
    Keywords: discrimination, audit studies, empirical bayes, q-values
    JEL: C11 C9 C93 J7 J71 J78 K31 K42
    Date: 2021–08
  10. By: Eyring, Henry; Ferguson, Patrick J.; Koppers, Sebastian
    Abstract: We use a field experiment in professional sports to compare effects of providing absolute, relative, or both absolute and relative measures in performance reports for employees. Although studies have documented that the provision of these types of measures can benefit performance, theory from economic and accounting literature suggests that it may be optimal for firms to direct employees’ attention to some types of measures by omitting others. In line with this theory, we find that relative performance information alone yields the best performance effects in our setting—that is, that a subset of information (relative performance information) dominates the full information set (absolute and relative performance information together) in boosting performance. In cross-sectional and survey-data analyses, we do not find that restricting the number of measures shown per se benefits performance. Rather, we find that restricting the type of measures shown to convey only relative information increases involvement in peer-performance comparison, benefitting performance. Our findings extend research on weighting of and responses to measures in performance reports.
    Keywords: Wiley deal
    JEL: M40
    Date: 2021–05–01

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