nep-acc New Economics Papers
on Accounting and Auditing
Issue of 2023‒09‒04
ten papers chosen by

  1. Taxes, Profit Shifting, and the Real Activities of MNEs: Evidence from Corporate Tax Notches By Jaqueline Hansen; Valeria Merlo; Georg Wamser
  2. Internal Audit Effectiveness and Its Determinant Factors in Commercial Banks of Ethiopia: The Case of Bale Robe Town By Majid, Hassan
  3. Same same but different: credit risk provisioning under IFRS 9 By Behn, Markus; Couaillier, Cyril
  4. Taxation of the rich and incentives for investments. The case of Norway By Geir H. M. Bjertnæs
  5. How to Combat Value-Added Tax Refund Fraud By Cedric Andrew; Ms. Katherine Baer
  6. From corporate tax competition to global cooperation? Trends, prospects and effects on German family businesses By Bührle, Anna Theresa; Nicolay, Katharina; Spengel, Christoph; Wickel, Sophia
  7. REDISTRIBUTION OF TAX REVENUES BETWEEN THE LEVELS OF THE BUDGET SYSTEM IN THE RUSSIAN FEDERATION By Arlashkin, Igor (Арлашкин, Игорь); Barbashova, Natalya (Барбашова, Наталья); Deryugin, Aleksandr (Дерюгин, Александр); Komarnitskaya, Anna (Комарницкая, Анна)
  8. Information-Forcing Effects of Non-Disclosure Rules By Giuseppe Dari-Mattiacci Author-Workplace-Name :University of Amsterdam; Sander Onderstal Author-Workplace-Name :University of Amsterdam; Francesco Parisi Author-Workplace-Name :University of Minnesota; Ram Singh
  9. Financial adjustment as a driver of growth model change: a balance-sheet approach to comparative political economy By Spielberger, Lukas; Voss, Dustin
  10. Intrinsic Motivation vs. Corruption? Experimental Evidence on the Performance of Officials By Lambsdorff, Johann Graf; Grubiak, Kevin; Werner, Katharina

  1. By: Jaqueline Hansen; Valeria Merlo; Georg Wamser
    Abstract: We exploit exogenous variation in tax notches created by controlled foreign corporation (CFC) rules to better understand the profit-shifting behavior of multinational enterprises (MNEs) and its consequences for real activity. Using new data on CFC rules and information on direct parent-affiliate ownership links, our identification approach allows us to estimate an unbiased profit-shifting semi-elasticity of about 0.22. Removing incentives to shift profits to particular low-tax locations leads to profit relocation to ‘next-best’ low-tax countries, allowing firms to circumvent domestic taxation. We do not find any significant effects on parent shareholders, neither in terms of repatriated profit nor in terms of their real economic activity. Other entities within the MNE, where profits get relocated to, see a significant increase in various measures of real activity.
    Keywords: corporate taxation, profit shifting anti-tax-avoidance rules, multinational enterprise, firm organization
    JEL: F23 H25
    Date: 2023
  2. By: Majid, Hassan
    Abstract: Internal Audit Effectiveness and Its Determinant Factors in Commercial Banks of Ethiopia: The Case of Bale Robe Town
    Date: 2023–08–04
  3. By: Behn, Markus; Couaillier, Cyril
    Abstract: We analyse the impact of the adoption of expected credit loss accounting (IFRS 9) on the timeliness and potential procyclicality of banks’ loan loss provisioning. We use granular loan-level data from the euro area’s credit register and investigate both firm-level credit events and macroeconomic shocks (2020 COVID-19 pandemic, 2022 energy price shock). We find that provisions under the new standard are higher before default and more responsive to shocks. However, the majority of provisioning still occurs at the time of default and the dynamics around default events are similar to pre-existing national standards. Additionally, banks with a larger capital headroom provision significantly more, particularly for loans using IFRS 9. This suggests a higher risk of underprovisioning for less capitalized banks. JEL Classification: G21, G28, G32
    Keywords: bank regulation, credit risk, financial stability, loan loss accounting
    Date: 2023–08
  4. By: Geir H. M. Bjertnæs (Statistics Norway)
    Abstract: Taxation of capital income and wealth redistributes from the rich but may harm the Norwegian economy as business investments is distorted. This study shows how to redistribute from the richest without distorting investment decisions of foreign and domestic investors within a simplified model framework designed for modest levels of taxes on capital income and wealth. A wealth tax without a discount for working capital combined with a tax rate on ordinary income equal to the corporate tax rate abroad achieves these goals. This tax proposal is assessed based on previous results on taxation.Creation-Date: 2023-05
    Keywords: Taxation; capital income; wealth
    JEL: H2 H21 F21
  5. By: Cedric Andrew; Ms. Katherine Baer
    Abstract: A previous IMF Working Paper on value-added tax (VAT) refunds (WP/07/31, by Keen and Smith) describes the main forms of VAT noncompliance and concludes that VAT is susceptible to evasion and fraud like any other tax. This paper shows the insidious nature and extent of VAT refund fraud in selected EU countries and argues that this type of noncompliance requires tax administrations to adopt a coordinated strategy and deploy a range of countermeasures to combat this threat. Because such fraud is primarily a criminal legal issue, tackling it successfully will require cooperation, both internationally between VAT administrations and nationally between tax authorities and the judiciary. The paper’s focus is primarily on advanced economies in the context of the EU, but many of the recommendations are applicable to emerging market and developing countries. A separate IMF How to Note discusses managing VAT refunds in developing countries.
    Keywords: value-added tax; refund; fraud; strategies; cooperation; refund fraud; acquisition fraud scheme; return fraud; MTIC VAT Contra carousel scheme; Customs and Excise tax office case study; Tax refunds; Tax administration core functions; Middle East
    Date: 2023–08–04
  6. By: Bührle, Anna Theresa; Nicolay, Katharina; Spengel, Christoph; Wickel, Sophia
    Abstract: This study provides an overview of current political developments in the tax competition debate, emphasizing the consequences for large German family businesses. We analyze new tax competition trends in Europe and selected industrialized countries in recent years. Subsequently, we discuss various international tax policy counter-reactions, namely the Anti-Tax Avoidance Directive and country-by-country reporting on the European level as well as the OECD's two-pillar project. We outline a potential shift in tax competition away from companies towards highly wealthy and highly qualified individuals. The implications of these developments on large German family businesses are emphasized, offering insights into the evolving landscape of tax competition.
    Keywords: tax competition, family businesses, international tax policy
    JEL: H25 H24 K34
    Date: 2023
  7. By: Arlashkin, Igor (Арлашкин, Игорь) (The Russian Presidential Academy of National Economy and Public Administration); Barbashova, Natalya (Барбашова, Наталья) (The Russian Presidential Academy of National Economy and Public Administration); Deryugin, Aleksandr (Дерюгин, Александр) (The Russian Presidential Academy of National Economy and Public Administration); Komarnitskaya, Anna (Комарницкая, Анна) (The Russian Presidential Academy of National Economy and Public Administration)
    Abstract: The subject of the study is the distribution of tax revenues between the levels of the budget system in the Russian Federation. The relevance of the study is caused by the need to strengthen the vertical balance of the budget system through tax decentralization in the context of the restructuring of the Russian economy. The aim of the study is to find parameters of tax decentralization that do not worsen the horizontal balance of regional budgets. The research method is the modeling of tax revenues of the consolidated regional budgets. The study used data from the Federal Treasury, the Federal Tax Service and the Ministry of Finance of Russia for 2019–2021. The scientific novelty of the study consists in modeling the effects of tax decentralization on the level of differentiation of regional tax revenues using the latest available data. As a result of the study, it was shown that an increase in regional shares for personal income tax, some components of the MET, water tax and fees for the use of aquatic biological objects up to 100 % will not lead to an increase in inter-regional differentiation of per capita tax revenues. The conclusion of the study is that there is a potential for tax decentralization in Russia, which can be realized by redistributing tax revenues to the regional level without worsening the horizontal budget balance. The prospects of the study are to take into account the effects of the structural transformation of the economy on the territorial distribution of tax bases and the level of taxation, as well as to detail the calculations of the MET as new data are accumulated.
    JEL: H71 H73 H77
    Date: 2022–11
  8. By: Giuseppe Dari-Mattiacci Author-Workplace-Name :University of Amsterdam; Sander Onderstal Author-Workplace-Name :University of Amsterdam; Francesco Parisi Author-Workplace-Name :University of Minnesota; Ram Singh (Department of Economics, Delhi School of Economicss, University of Delhi)
    Abstract: Contract law traditionally applies different disclosure duties on buyers and sellers. Sellers are generally required to disclose “negative” information about hidden defects of the products they sell. Failure to disclose can make the contract voidable and can give rise to liability. By contrast, buyers are generally under no comparable duties to disclose “positive” information about hidden qualities of the products they buy. The leading explanation for the law’s disparate treatment of buyers and sellers in these two asymmetric information problems is that imposing disclosure duties on buyers would undermine their incentives to acquire costly (but socially useful) information prior to forming a contract (Kronman, 1978). This explanation lacks a key step—the failure to correct asymmetric information problems would cause the inverse adverse selection problem (identified by Burckart and Lee (2016) and Dari-Mattiacci et al. (2021)) to arise. Uninformed sellers would withdraw from the market and resources would not move to higher-valuing users. In this paper, we develop a model to study the incentives created by disclosure and non-disclosure rules. We show that when parties can contract around defaults, the choice of alternative disclosure rules (duty to disclose vs. no duty to disclose) makes a difference. Unlike disclosure rules, non-disclosure default rules yield partially separating equilibria that preserve the buyers’ incentives to acquire information. They also foster trade opportunities between expert buyers and uninformed sellers. Our results add to the existing literature by providing an additional rationale for the different treatment of buyers and sellers in asymmetric information problems. JEL Codes : D44, D82, D86, K12.
    Keywords: asymmetric information, penalty default rules, inverse adverse selection
    Date: 2023–08
  9. By: Spielberger, Lukas; Voss, Dustin
    Abstract: Growth model theory has turned the focus of comparative political economy scholars on the demand drivers of economic growth. But while its proponents emphasize the variety and inherent instability of growth models, research so far has been more concerned with the emergence and coherence of stable growth models than in the process of change. We argue that growth model change can be understood as a process of financial rebalancing on the level of institutional sectors. When an overindebted sector is forced to deleverage, a politically contested process emerges over the path of adjustment. We derive various ways in which each sector can contribute to this process of financial adjustment, which we conceptualize as the activation of macroeconomic ‘compensation valves’. This process shapes the trajectory of economic performance during financial crisis and determines whether a new feasible growth model can emerge in its aftermath. We apply our analytical lens in a comparative case study of Germany and the Netherlands during the Great Recession. We conclude that future research on growth models should more explicitly problematize the ability of political economies to adapt to financial instability.
    Keywords: balance sheet analysis; financial crisis; Germany; growth models; instability; Netherlands; Balance sheet analysis; Instability; Growth models; Financial crisis
    JEL: E00 G00
    Date: 2022–08–03
  10. By: Lambsdorff, Johann Graf; Grubiak, Kevin; Werner, Katharina
    Abstract: There are conflicting views as to whether corruption or intrinsic motivation plays a greater role in determining the performance of public officials. We run an experiment that incorporates both viewpoints and assess the relative strength and interplay of these respective factors. The design introduces some realism into an everyday exchange between an Estimator (businessperson) and an Auditor (public official) and induces a gray area between intrinsic motivation, extortion and bribery. The Estimator can make a large transfer in the hope of avoiding unfair treatment (extortion) or obtaining an undeserved benefit (bribery). The Auditor may be intrinsically motivated to fulfill her duty or may be corrupted by transfers. We find that intrinsic motivation has a much higher impact on the performance of Auditors than corruption. In a treatment with punishment, Auditors are significantly less likely to accept a large transfer. But punishment fails to bring about favorable welfare effects due to two forces offsetting each other on the individual level. Intrinsic motivation increases for some subjects, supporting the “expressive law” literature, while it decreases for others, supporting the “crowding-out” literature. We infer that punishing officials is an unproblematic tool for fighting corruption, but its effectiveness is called into question. Policies should focus more on preserving officials’ intrinsic motivation and worry less about their corruptibility.
    Keywords: Bribery; crowding-out; expressive law; extortion; intrinsic motivation
    JEL: C92 D73 K42
    Date: 2023–05–24

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