nep-acc New Economics Papers
on Accounting and Auditing
Issue of 2023‒03‒06
five papers chosen by

  1. Home or Away? Profit Shifting with Territorial Taxation By Ms. Li Liu; Dominika Langenmayr
  2. The real-time macro content of corporate financial reports: a dynamic factor model approach By Abdalla, Ahmed; Carabias, Jose M.; Patatoukas, Panos N.
  3. Republic of Armenia: Technical Assistance Report on Personal Income Tax: Policy Review and Introduction of a Universal Declaration By International Monetary Fund
  4. Adults in the room? The auditor and dividends in small firms: Evidence from a natural experiment By Hakim Lyngstad{\aa}s; Johannes Mauritzen
  5. Methodological Developments for the Estimation of Own-account Software Investment in the UK By Josh Martin

  1. By: Ms. Li Liu; Dominika Langenmayr
    Abstract: In 2009, the United Kingdom abolished the taxation of profits earned abroad and introduced a territorial tax system. Under the territorial system, firms have strong incentives to shift profits abroad. Using a difference-in-differences research design, we show that the profitability of UK subsidiaries in low-tax countries increased after the reform compared to subsidiaries of non-UK multinationals in the same countries by an average of 2 percentage points. This increase in profit shifting also leads to increases in measured productivity of the foreign affiliates of UK multinationals of between 5 and 9 percent.
    Keywords: profit shifting; territorial tax system; multinational firms; shifted profit; UK multinational; UK subsidiary; difference-in-differences research design; Total factor productivity; Transnational corporations; Corporate income tax; Income; Wages; Global
    Date: 2022–09–09
  2. By: Abdalla, Ahmed; Carabias, Jose M.; Patatoukas, Panos N.
    Abstract: We use a standard dynamic factor model to extract new factors based on the real-time flow of accounting data from the corporate financial reports. The extracted accounting factors exploit across-sector comovements in corporate value creation drivers and can be used together with other closely watched economic indicators. We show that our weekly updated accounting factors are incrementally relevant for nowcasting and forecasting major components of economic output in the BEA’s National Income and Product Accounts. Overall, our paper pioneers a new approach to incorporating the continuous flow of accounting data within the context of dynamic factor models.
    Keywords: Corporate Financial Reports; Nowcasting; Forecasting; Macro Accounting
    JEL: F3 G3 M40
    Date: 2021–03–01
  3. By: International Monetary Fund
    Abstract: This report reviews the Personal Income Tax in Republic of Armenia and identifies policy and administration options to support the introduction of a Universal PIT Declaration, as well as enhance the PIT’s revenue mobilization and equity. We discuss improvements of the PIT’s tax incentives, with a focus on the mortgage interest tax credit, and opportunities to make the PIT more progressive while preserving its revenue mobilization performance. Best practice administrative solutions are presented to facilitate the introduction of the Universal Declaration, including prefilling of information and organizational issues.
    Keywords: Personal income tax universal income declaration tax incentives
    Date: 2023–01–30
  4. By: Hakim Lyngstad{\aa}s; Johannes Mauritzen
    Abstract: We examine the effect of auditing on dividends in small private firms. We hypothesize that auditing can constrain dividends by way of promoting accounting conservatism. We use register data on private Norwegian firms and random variation induced by the introduction of a policy allowing small private firms to forgo the use of an auditor to estimate the effect of auditing on dividend payout. Identification is obtained by a regression discontinuity around the arbitrary thresholds for the policy. Propensity score matching is used to create a balanced synthetic control. We consistently find that forgoing auditing led to a significant increase in dividends in small private firms.
    Date: 2023–01
  5. By: Josh Martin
    Abstract: Own-account software (OAS) investment is the investment in software assets in-house for use within the firm: an increasingly important form of intangible investment. I consider methodological developments for UK estimates of OAS investment. First, I estimate OAS investment using the quarterly Labour Force Survey (LFS), following the method used by the Office for National Statistics (ONS) almost exactly, which uses the Annual Survey of Hours and Earnings as its main data source. This produces the first genuinely quarterly estimates of OAS investment, which enable a better understanding of recent trends in the economy than existing estimates. These quarterly estimates suggest considerably stronger growth during 2020 and 2021 than in official estimates, with implications for other National Accounts variables. In constructing these figures, I also develop time factors for Standard Occupation Classification (SOC) 2020 codes for the first time. Second, I consider other improvements in measurement, including an approach that combines ASHE and LFS data, improved calculation of sales adjustment factors, and treatment of the self-employed.
    Keywords: intangible assets, business investment, national accounting, economic measurement
    JEL: E01 E22 O34
    Date: 2022–10

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