|
on Accounting and Auditing |
| By: | Benito Arruñada |
| Abstract: | Audit quality is an institutional outcome, not a trait of auditors. A regime disciplined mainly by inspectability and liability rewards provable evidence and tends to crowd out the soft information auditors observe but cannot prove. The paper traces this bias to the regulatory rewarding of ex-post verifiability at a time when accounting has turned predictive, and argues that in banking it becomes systemic: because auditors across banks wait for the same verifiable triggers, dispersed, bank-specific deterioration is filtered out and recognition is synchronized, turning staggered adjustments into a common, abrupt shock. The relevant contrast is not early versus late recognition but gradual versus abrupt. The policy implication is not to turn auditors into supervisors, but to design standards, liability, inspection, and supervisory communication so that judgment over information observable before it is verifiable is protected rather than taxed. |
| Date: | 2026–07 |
| URL: | https://d.repec.org/n?u=RePEc:fda:fdaddt:2026-05 |
| By: | Jingnan Chen (Department of Economics, University of Exeter); Yixin Chen (Central University of Finance and Economics); Zhixin Dai (School of Finance, Renmin University of China); Tianqi Wei (China University of Political Science and Law); Su Yang (Renmin University of China) |
| Abstract: | Taxpayers rarely observe audit probabilities and must infer changes in enforcement from personal and social experience. We study this process in a laboratory tax-reporting experiment with 568 participants. Each participant faces hidden audit probabilities of 5 percent and 25 percent in randomized order, and we vary peer information across sessions from none to one or two preceding audit outcomes in a sparse network and three in a dense network. Before any peer outcome is transmitted, assignment to either network raises compliance by about 20% relative to no peer information. Once outcomes circulate, compliance in the dense network is approximately twice as responsive to enforcement as without peer information and about 60% more responsive than in the sparse network. This amplification is directional: relative to no peer information, the dense network raises compliance by about 12% after enforcement strengthens but lowers it by about 25% after enforcement weakens. Elicited belief distributions show that broader information reach improves learning about the changed enforcement environment. Higher perceived audit probabilities predict greater subsequent compliance, and the dense network's advantage comes from accumulating more peer signals rather than weighting each signal more heavily. Counterfactual policy exercises show that broader diffusion can reinforce deterrence under strong enforcement but erode it under weak enforcement; a model-based exercise suggests that full disclosure of the audit probability can reduce compliance under both weak and strong enforcement. |
| Keywords: | tax compliance, tax enforcement, social learning, information networks, subjective beliefs |
| JEL: | H26 D83 C91 |
| Date: | 2026–07–31 |
| URL: | https://d.repec.org/n?u=RePEc:exe:wpaper:2610 |
| By: | Bustos, Sebastian; Pomeranz, Dina; Suárez Serrato, Juan Carlos; Vila-Belda, José; Zucman, Gabriel |
| Abstract: | Profit shifting by multinational corporations is thought to reduce tax revenue around the world. This paper provides a comprehensive analysis of the introduction of standard regulations to limit profit shifting. Using administrative tax and customs data from Chile, we find that the reform was ineffective in reducing multinationals’ transfers to lower-tax countries and did not significantly raise tax payments. Interviews with tax advisors and employment history data reveal a drastic increase in consulting services. Our results illustrate that when enforcement can be circumvented by sophisticated tax planning, it can benefit tax consultants at the expense of tax authorities and taxpayers. |
| JEL: | F23 H26 O23 |
| Date: | 2025–05 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:20207 |
| By: | Pomeranz, Dina; Suárez Serrato, Juan Carlos |
| Abstract: | The OECD has promoted the adoption of internationally standardized transfer pricing rules to curb profit shifting for tax avoidance by multinational firms. Bustos et al. (2023) analyzed a large reform in Chile based on these OECD standards and found that it led to a surge in tax advisory services. This paper investigates the external validity of this finding. Combining employment history data with information on countries’ strictness of transfer pricing regulations over time, we analyze the effect for four countries: Chile, Colombia, Spain, and Uruguay. Event study difference-in-differences analysis shows that reforms led to substantial increase in transfer pricing consultants in most cases. The effect is larger when the reform is stronger and when a country has a lower level of pre-treatment transfer pricing strictness or of transfer pricing consultants. |
| Keywords: | Transfer pricing; Profit shifting; Consulting; Tax avoidance |
| JEL: | F23 H26 J21 |
| Date: | 2025–05 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:20208 |
| By: | Iglesias-Osores, Sebastian |
| Abstract: | Law No. 30309 is Peru’s main fiscal incentive for scientific research, technological development and technological innovation: it allows corporate income taxpayers to deduct up to 240 per cent of expenditure on projects certified by CONCYTEC. This paper systematises the framework in force following Law No. 32539 and Supreme Decree No. 116-2026-EF, which extended the incentive through fiscal year 2028, strengthened ex post review and clarified that the auditable objective includes the general objective, specific objectives and approved scope; explains in financial terms how the saving is determined and through which channel it materialises; and situates the instrument within the wider tax and national innovation systems. The central argument concerns the asymmetry between the generosity of the incentive and its effective uptake in a context of low R&D intensity. The gap depends less on the nominal deduction rate than on firms’ capacity to identify, formulate, execute and substantiate eligible projects. The paper therefore treats documentation quality and consistency between technical execution and accounting records as part of the economic cost of accessing the incentive. |
| Keywords: | research and development; technological innovation; science and technology policy; research financing; legislation; Peru |
| JEL: | H25 K34 O31 O38 |
| Date: | 2026–07–01 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:130206 |
| By: | Stefano Caselli, Marta Zava |
| Abstract: | This report examines household wealth composition and the design of tax-advantaged retail investment accounts in four European economies over the period 1998 to 2024. Drawing on national balance sheet data from Istat, the Office for National Statistics, INSEE and Statistics Sweden, the first part documents the allocation of household wealth between financial and nonfinancial assets, the composition of financial portfolios, and equity market participation in Italy, the United Kingdom, France and Sweden. The second part compares four retail investment instruments, namely the Italian PIR, the French PEA and PEA-PME, the Swedish ISK and the United Kingdom ISA, along the dimensions of tax treatment, contribution limits, eligible assets, holding period requirements, distribution channels and market performance. The evidence indicates that fiscal generosity is a weak predictor of household adoption. The most generously taxed instrument in the sample, the Italian PIR, records the lowest penetration at 1.5 percent of adults and 0.5 percent of household financial wealth, whereas the Swedish ISK, whose flat annual levy on portfolio value is conceptually less favourable, reaches 52.3 percent penetration and 7.8 percent of financial wealth. Adoption correlates instead with the absence of holding period requirements, breadth of the eligible investment universe, simplicity of tax computation and stability of the regime over time. The report concludes by proposing an Italian adaptation of the Swedish model, the Conto di Investimento a Tassazione Forfettaria, which replaces realisation-based capital gains taxation with an annual presumptive levy on portfolio value calculated as the European Central Bank reference rate plus one percentage point, multiplied by 30 percent. |
| Keywords: | household finance, retail investment accounts, wealth allocation, equity market participation, capital markets union, savings taxation, ISA, ISK, PEA, PIR. |
| JEL: | D14 G11 G18 G51 H24 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:baf:cbafwp:cbafwp26280 |
| By: | Gabaix, Xavier; Koijen, Ralph; Richmond, Robert; Yogo, Motohiro |
| Abstract: | Firm characteristics, based on accounting and financial market data, are commonly used to represent firms in economics and finance. However, investors collectively use a much richer information set beyond firm characteristics, including sources of information that are not readily available to researchers. We show theoretically that portfolio holdings contain all relevant information for asset pricing, which can be recovered under empirically realistic conditions. Such guarantees do not exist for other data sources, such as accounting or text data. We build on recent advances in artificial intelligence (AI) and machine learning (ML) that represent unstructured data (e.g., text, audio, and images) by high-dimensional latent vectors called embeddings. Just as word embeddings leverage the document structure to represent words, asset embeddings leverage portfolio holdings to represent firms. Thus, this paper is a bridge from recent advances in AI and ML to economics and finance. We explore various methods to estimate asset embeddings, including recommender systems, shallow neural network models such as Word2Vec, and transformer models such as BERT. We evaluate the performance of these models on three benchmarks that can be evaluated using a single quarter of data: predicting relative valuations, explaining the comovement of stock returns, and predicting institutional portfolio decisions. We also estimate investor embeddings (i.e., representations of investors and their strategies), which are useful for investor classification, performance evaluation, and detecting crowded trades. We discuss other applications of asset embeddings, including generative portfolios, risk management, and stress testing. Finally, we develop a framework to give an economic narrative to a group of similar firms, by applying large language models to firm-level text data. |
| Keywords: | Artificial intelligence; Asset pricing; Machine learning; Transformer models |
| JEL: | C53 G12 G23 |
| Date: | 2025–03 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:20082 |