nep-acc New Economics Papers
on Accounting and Auditing
Issue of 2023‒01‒09
eleven papers chosen by

  1. Taxing Multinational Enterprises: A Theory-Based Approach to Reform By Wolfram F. Richter
  3. Dividend tax credits and the elasticity of taxable income: evidence from small businesses By Pablo Gutierrez Cubillos
  4. CFO Working Experience and Tax Avoidance By Panagiotis Karavitis; Pantelis Kazakis; Tianyue Xu
  5. Creditor Rights, Implicit Covenants, and the Quality of Accounting Information By Assaf Hamdani; Yevgeny Mugerman; Ruth Rooz; Nadav Steinberg; Yishay Yafeh
  6. How to Make the Management of Public Finances Climate-Sensitive–“Green PFM” By Murray Petrie; Mr. Fabien Gonguet; Ozlem Aydin Sakrak; Bryn Battersby; Jacques Charaoui; Mr. Claude P Wendling
  7. Strengthening the tax system to reduce inequalities and increase revenues in South Africa By Falilou Fall
  8. Cyclicality of Tax Expenditures: The Case of Israel By Michel Strawczynski
  9. Use It or Lose It: Efficiency and Redistributional Effects of Wealth Taxation By Sergio Ocampo; Fatih Guvenen; Gueorgui Kambourov; Burhan Kuruscu; Daphne Chen
  10. Varieties of demand and growth regimes: Post-Keynesian foundations By Hein, Eckhard
  11. ESG Factors and Firms’ Credit Risk By Laura Bonacorsi; Vittoria Cerasi; Paola Galfrascoli; Matteo Manera

  1. By: Wolfram F. Richter
    Abstract: Almost 140 countries have agreed to reallocate the rights to tax international corporate profits and to introduce minimum tax rates. The agreed plan is the product of pragmatism and a search for consensus, but ambitious. It includes steps towards unitary taxation to be established by a multilateral convention that the world has not yet seen in comparable format. This paper argues for a reform that retains separate entity accounting and addresses the flaws in the current system of corporate taxation at their root rather than merely fixing symptoms. To this end, a reform aimed specifically at the rules governing the taxation of intangible assets is recommended.
    Keywords: OECD/G20 BEPS Project, formula apportionment, separate entity accounting, Shapley assignment of taxing rights, residual profit allocation/splitting
    JEL: H25 F23 M48
    Date: 2022
  2. By: Sokolov Ilya (Russian Presidential Academy of National Economy and Public Administration)
    Abstract: Today, a significant share of tax revenue in most countries comes from VAT. So, for example, according to data for 2017, for OECD countries the average share of VAT tax revenues is about 20-25%. This indicator is second only to insurance premiums and personal income tax (PIT). At the same time, there is a very heated discussion about how the VAT affects public welfare, especially in the context of switching from other forms of taxation.
    Keywords: value added tax, factor analysis
    Date: 2021–01
  3. By: Pablo Gutierrez Cubillos (University of Chile)
    Abstract: We assess firms’ taxable income response to a dividend tax credit increase whencorporate and personal taxes are integrated. First, we theoretically show that, in anintegrated tax system, welfare changes stemming from a rise in corporate taxes dependon two parameters: the elasticity of taxable income with respect to the corporate taxrate and with respect to the dividend tax credit. Second, to estimate both parameters, we propose an identification strategy that relies on the bunching methodology and theexcess bunching difference before and after a tax reform that increased the dividendtax credit. Using Canadian administrative tax data and the presence of a kink inthe corporate tax system, we estimate these elasticities and empirically show that theincrease in the dividend tax credit reduced the deadweight loss associated with anincrease in the corporate tax by more than 50%. Our results are robust to a battery ofrobustness checks, including nonparametric estimates of the counterfactual densityin the bunching procedure.
    Keywords: Bunching Estimation, Corporate taxation, Dividend taxation, Elasticity of taxable income, Small business, Tax integration
    JEL: H25
    Date: 2022–12
  4. By: Panagiotis Karavitis; Pantelis Kazakis; Tianyue Xu
    Abstract: We ask whether CFO's managerial skills affect corporate tax avoidance using a sample of Chinese-listed companies. To that end, we develop a CFO managerial skills index based on four dimensions of the CFO's work experience: (1) the number of current positions a CFO holds, (2) the number of functional departments a CFO has worked in during his career, (3) the number of firms he has worked for, and (4) whether the CFO has political connections. We find that CFOs with high managerial skills are more likely to engage in aggressive tax avoidance. This effect is weakened when CFOs are in their first year of employment, approaching retirement, and are too busy. Moreover, we find that CFOs with general management skills are more likely to adjust corporate tax avoidance to levels similar to their peers.
    Keywords: Chief Financial Officer (CFO); work experience; managerial skills; tax avoidance
    JEL: G30 H26 J24 M41
    Date: 2022–11
  5. By: Assaf Hamdani (Tel Aviv University); Yevgeny Mugerman (Bar Ilan University); Ruth Rooz (The Hebrew University of Jerusalem); Nadav Steinberg (Bank of Israel); Yishay Yafeh (The Hebrew University of Jerusalem)
    Abstract: We study a 2013 court decision that enhanced creditor control rights in Israel by allowing creditors to force companies in distress into bankruptcy. Following the ruling, we observe a pronounced increase in the reported net worth of the firms affected by it, as some of them increased their net worth by raising new equity. We also find, however, that affected firms changed their accounting policies, increasing the use of long-term discretionary accruals and reducing the extent of accounting conservatism. As a result of these accounting changes, we document a decline in the informativeness of the affected firms’ financial reports. We conclude that, the benefits from empowering creditors may be mitigated by unintended consequences in the form of increased incentives for borrowing firms to adopt aggressive accounting practices, which, in turn, lead to a reduction in the quality of information available to bondholders.
    Date: 2022–02
  6. By: Murray Petrie; Mr. Fabien Gonguet; Ozlem Aydin Sakrak; Bryn Battersby; Jacques Charaoui; Mr. Claude P Wendling
    Abstract: This How to Note develops the “green public financial management (PFM)” framework briefly outlined in an earlier Staff Climate Note (2021/002, published in August 2021). It illustrates, how climate change and environmental concerns can be mainstreamed into government’s institutional arrangements in place to facilitate the implementation of fiscal policies. It provides numerous country examples covering possible entry points for green PFM – phases in the budget cycle (strategic planning and fiscal framework, budget preparation, budget execution and accounting, control, and audit), legal framework or issues that cut across the budget cycle, such as fiscal transparency or coordination with State Owned Enterprises or with subnational governments. This How to Note also summarizes practical guidance for implementation of a green PFM strategy, underscoring the need for a tailored approach adapted to country specificities and for a strong stewardship role of the Ministry of Finance.
    Keywords: Public financial management; green budgeting; green public financial management; mainstreaming; climate change adaptation; climate change mitigation
    Date: 2022–12–08
  7. By: Falilou Fall
    Abstract: The Covid-19 crisis has exacerbated the already deteriorating fiscal situation in South Africa. The current consolidation strategy, based on spending cuts and reprioritisation of spending items, has reached its limits and is insufficient to stabilise the debt ratio in the medium term and fund unmet public services needs. The tax-benefit system needs to be redesigned to create fiscal space in the years to come to finance growth-enhancing reforms and to reduce inequalities. The challenge is to generate additional revenues without generating inefficiencies or exacerbating inequality. Income taxes represent around half of total tax revenues, but are levied on small tax bases, partly reflecting the unequal distribution of income. Only the value-added tax has a relatively broad basis combined with a moderate tax rate. There is some scope to raise revenues further while reducing existing tax distortions, notably by broadening the base of corporate and personal income taxes, as well as consumption taxes. Taxes with a less harmful impact on growth, such as property taxes, are limited by the inefficient municipal rates system. There remains scope to further increase environmentally-related taxes.
    Keywords: Business tax, Goods and services tax, government revenues, Personal Income tax, Tax
    JEL: H23 H24 H25 H26 H27
    Date: 2022–12–22
  8. By: Michel Strawczynski (Bank of Israel)
    Abstract: Tax expenditures have been rarely investigated internationally because of lack of data. This paper analyzes the cyclicality of tax expenditures in Israel, a country that has gradually intensified the use of this tool, becoming quantitatively important in terms of GDP when compared to other OECD countries. Using quarterly data for the period 1986 to 2016, I find that the pattern of cyclicality of government decisions on tax expenditures changed after 1997, following a notorious reduction of government's deficit and debt: tax expenditures became pro-cyclical in expansions and counter-cyclical in recessions. The latter finding resembles the pattern documented in the literature for government spending in selected developing economies, who achieved in recent years counter-cyclical implementation of spending.
    Keywords: Tax Expenditures, Cyclical Policy
    JEL: H24 H25 H61
    Date: 2022–01
  9. By: Sergio Ocampo (University of Western Ontario); Fatih Guvenen (University of Minnesota, Federal Reserve Bank of Minneapolis, and NBER); Gueorgui Kambourov (University of Toronto); Burhan Kuruscu (University of Toronto); Daphne Chen (Econ One)
    Abstract: How does wealth taxation differ from capital income taxation? When the return on investment is equal across individuals, a well-known result is that the two tax systems are equivalent. Motivated by recent empirical evidence documenting persistent return heterogeneity, we revisit this question. With heterogeneity, the two tax systems typically have opposite implications for both efficiency and inequality. Under capital income taxation, entrepreneurs who are more productive and therefore generate more income pay higher taxes. Under wealth taxation, entrepreneurs who have similar wealth levels pay similar taxes regardless of their productivity, which expands the tax base, shifts the tax burden toward unproductive entrepreneurs, and raises the savings rate of productive ones. This reallocation increases aggregate productivity and output. In the simulated model parameterized to match the US data, replacing the capital income tax with a wealth tax in a revenue-neutral fashion delivers a significantly higher average welfare. Turning to optimal taxation, the optimal wealth tax (OWT) is positive and yields large welfare gains by raising efficiency and lowering inequality. In contrast, the optimal capital income tax (OKIT) is negative—a subsidy—and delivers lower welfare gains than OWT, owing to the welfare losses from higher inequality. Furthermore, when the transition path is considered, the gains from OKIT turn into significant welfare losses for existing cohorts, whereas OWT continues to deliver robust welfare gains. These results suggest that moderate wealth taxation may be a more appealing alternative than capital income taxation, which can be significantly more distorting under return heterogeneity than under the equal-returns assumption.
    Keywords: wealth tax, capital income tax, optimal taxation, rate of return heterogeneity, power law models, Pareto tail, wealth inequality
    JEL: E21 E22 E62 H21
    Date: 2022
  10. By: Hein, Eckhard
    Abstract: We review post-Keynesian contributions to demand and growth regime analysis. First, we distinguish the Kalecki-Steindl approach and the Sraffian supermultiplier approach as relevant theoretical foundations for demand and growth regime research, with investment-driven and distribution-led growth in the focus of the former and autonomous demand-led growth in the latter. Based on this, we review different ways of analysing the co-existence of demand and growth regimes in the current period of neoliberal and finance-dominated capitalism. We distinguish, first, a basic national income and financial accounting decomposition approach, second, a Sraffian supermultiplier inspired growth decomposition approach, and, third, several lenses looking at growth drivers. We argue that these three levels of analysis are, in principle, not mutually exclusive nor even contradictory, but that they rather complement each other. We conclude that, in particular the PK analysis of growth drivers provides several systematic links with comparative and international political economy approaches, when it comes to the introduction of the political economy dimension (social blocs, growth coalitions, changes in institutions favouring certain type of re-distribution and economic policies, etc.), while the national income and financial accounting, as well as the Sraffian supermultiplier growth accounting decomposition approaches provide the consistent macroeconomic foundations for such syntheses.
    Keywords: Demand and growth regimes,post-Keynesian economics,Kalecki-Steindl models,Sraffian supermultiplier models,wage-/profit-led regimes,finance-led/finance-burdened regimes,debt-led private demand boom regimes,export-led regimes,domestic demand-led regimes
    JEL: B59 E02 E11 E12 E65 P51
    Date: 2022
  11. By: Laura Bonacorsi (Department of Social and Political Sciences, Bocconi University); Vittoria Cerasi (Italian Court of Auditors and CefES & O-Fire, University of Milano-Bicocca); Paola Galfrascoli (Department of Economics, Management and Statistics and CefES & O-Fire, University of Milano-Bicocca); Matteo Manera (Department of Economics, Management and Statistics, University of Milano-Bicocca and Fondazione Eni Enrico Mattei)
    Abstract: We study the relationship between the risk of default and Environmental, Social and Governance (ESG) factors using Supervised Machine Learning (SML) techniques on a cross-section of European listed companies. Our proxy for credit risk is the z-score originally proposed by Altman (1968). We consider an extensive number of ESG raw factors sourced from the rating provider MSCI as potential explanatory variables. In a first stage we show, using different SML methods such as LASSO and Random Forest, that a selection of ESG factors, in addition to the usual accounting ratios, helps explaining a firm’s probability of default. In a second stage, we measure the impact of the selected variables on the risk of default. Our approach provides a novel perspective to understand which environmental, social responsibility and governance characteristics may reinforce the credit score of individual companies.
    Keywords: Credit risk, Z-scores, ESG factors, Machine learning
    JEL: C5 D4 G3
    Date: 2022–11

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