nep-acc New Economics Papers
on Accounting and Auditing
Issue of 2022‒09‒26
four papers chosen by

  1. When the Celtic Tiger relaxed its corporate tax bite: An analysis of the effects on the top and upper middle income shares in Ireland By Niklas Uliczka
  2. A Macroeconomic Perspective on Taxing Multinational Enterprises By Sebastian Dyrda; Guangbin Hong; Joseph B Steinberg
  3. China’s VAT Reform, Enterprises Tax Burden and Innovation By Feng, Haibo; Liu, Sheng; Xu, Fei
  4. Informational efficiency of credit ratings By Nidhi Aggarwal; Manish K. Singh; Susan Thomas

  1. By: Niklas Uliczka
    Abstract: In 1997, the Irish government introduced reforms to revolutionize corporate taxation, with focus on creating opportunities for tax neutrality and on reducing the standard corporate tax rate. This paper studies the relationship between this Irish corporate tax reform and income shares at the top and the upper middle of the distribution. Using the synthetic control method, findings suggest that the reforms had large positive effects on the income share of the top 1% and sizeable negative effects on the upper middle 40% of income earners. Such heterogenous effects indicate increasing income inequality due to targeted corporate tax incentives.
    Date: 2022–09
  2. By: Sebastian Dyrda; Guangbin Hong; Joseph B Steinberg
    Abstract: We develop a framework to study the macroeconomic implications of taxing multinational enterprises (MNEs) that shift profits to subsidiaries in low-tax jurisdictions by transferring ownership of non-rival intangible capital. We first prove analytically that profit shifting increases intangible investment, leading to higher profits and output at the MNE level. We then calibrate our model so that it reproduces salient country-level facts about production, trade, FDI, and, most importantly, profit shifting. We use our calibrated model to evaluate the consequences of two proposals by the OECD and G20 governments to reduce profit shifting by MNEs: allocating the rights to tax some of an MNE's profits to the countries in which it sells its products; and a 15% minimum global corporate income tax. We show that these policies would reduce profit shifting by more than two-thirds, but would also reduce intangible investment and output in high-tax regions. This highlights a key tension for policymakers: profit shifting erodes high-tax countries' tax bases, but also boosts economic activity, and thus policies that reduce profit shifting have harmful macroeconomic side effects.
    Keywords: Multinational enterprise; transfer pricing; profit shifting; base erosion; intangible capital; corporate tax
    JEL: E6 F23 H25 H27
    Date: 2022–09–01
  3. By: Feng, Haibo (Jinan University, College of Economics); Liu, Sheng (Guangdong University of Foreign Studies, School of Economics and Trade); Xu, Fei (Department of Economics, Umeå University)
    Abstract: The impact of China’s VAT reform on enterprise innovation is the result of the combination of tax cuts and endogenous incentives. We find evidence that China’ VAT reform generally reduced the tax burden of firms but had a different impact on the manufacturing and the service industry. The tax burden of the manufacturing dropped significantly, but that of the service industry did not change markedly. Furthermore, we show that China’s VAT reform had also a significant positive impact on corporate innovation for both the service industry and the manufacturing. However, these effects were significantly greater in the manufacturing. Meanwhile, China’s VAT reform did not alleviate the tax burden of all the enterprises. For the enterprises facing the increased burden of tax, the reform can still stimulate the enterprise innovation if it has sufficient own capital, whereas the impact coefficient and significant level reduced significantly compared with the enterprises that the burden of tax reduced. If the enterprise’s own capital is insufficient, VAT reform has little effect on enterprise innovation. Finally, we show that China’s VAT reform exerted different influences on the innovative behavior of heterogeneous enterprises.
    Keywords: China’s VAT reform; Tax Burden; Innovation
    JEL: H25 H32 O31
    Date: 2022–09–06
  4. By: Nidhi Aggarwal (Indian Institute of Management, Udaipur); Manish K. Singh (Indian Institute of Technology, Roorkee); Susan Thomas (O. P. Jindal Business School and XKDR Forum)
    Abstract: The timeliness of the credit rating of a firm has been frequently called into question over the previous two decades. This paper examines whether changes in credit ratings can be updated more frequently than at the frequency of updates in the accounting data. The paper finds that, when market equity prices of firms are readily available, changes in high frequency measures such as the Distance to Default, along with low frequency firm characteristics such as ownership structure and accounting data, can provide a more timely update on the probability of credit ratings downgrades.
    JEL: G21 G24 G32
    Date: 2022–09

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