An examination of firms’ responses to tax forgiveness

This study uses state tax amnesties to examine how firms respond to forgiveness—particularly repeated forgiveness—by a taxing authority. We posit that tax forgiveness programs alter taxpayer perceptions of the probability of detection by enforcers or the probability of future forgiveness programs, either of which could affect future tax aggressiveness. We find that firms headquartered in an amnesty-granting state increase state income tax aggressiveness following the first instance of tax amnesty, relative to control firms in other states. Moreover, we find evidence that tax aggressiveness incrementally increases with each additional repetition of a tax amnesty. Finally, we find that the effect of amnesties on tax aggressiveness is more prominent for small firms, which face less scrutiny and for which the tax aggressiveness measures are less confounded. Our findings suggest that repeated programs of tax forgiveness have increasingly negative implications for corporate tax collections.     

A reexamination of state fiscal health and amnesty enactment

We use event history analysis to separately model a state’s first and then repeated tax amnesties and test the revenue yield versus the fiscal stress hypotheses using a panel of annual data from all 50 states for the period 1982–2010. We also split our sample into two sub-periods, 1982–1988 and 1989–2010, to more easily compare our results to other studies and to see if there is a significant difference between early tax amnesties and more recent ones. We find that state fiscal stress is more important than the potential yield from an amnesty, particularly for more recent amnesties. Our findings contrast with the existing literature which found evidence that states are likely to enact tax amnesties due to a revenue yield motive rather than a fiscal stress motive.     

Liquidity and asset prices: A new monetarist approach

When lenders cannot force borrowers to repay debts, assets are often pledged to secure loans. In this paper borrowers lose collateral once they renege on debts, and exclusion of defaulters occurs probabilistically, with a higher probability implying better enforcement. Increased efficiency in enforcement reduces asset prices, while raising loan-to-value ratios. If the rise in loan-to-value ratios is the dominant effect, aggregate liquidity and output increase with the advance in enforcement. Inflation raises the repayment cost by increasing the loan rate, while raising the default cost through exclusion. Consequently, inflation raises loan-to-value ratios and output only when enforcement is sufficiently efficient.     

Country-level Accounting Enforcement and IPO Underpricing

Using a sample of up to 2,503 initial public offerings (IPOs) in 32 countries from 2011–2017, we predict and find that higher levels of country-level accounting enforcement are associated with lower levels of IPO underpricing. IPOs in countries with a relatively low accounting enforcement score (second quintile) exhibit a mean underpricing of 19%, whereas the mean underpricing amounts to just 9% in countries with a relatively high score (fourth quintile). The results remain qualitatively the same when we employ a multi-level model or a difference-in-difference design. In countries that substantially strengthened their accounting enforcement in the 2003–2009 period, the level of IPO underpricing decreased significantly. We show that accounting enforcement matters for the cost of going public.     

Do lack of transparency and enforcement undermine international risk-sharing?

This paper studies the extent to which poor institutions compromise risk-sharing. We model a multilateral organization as a social contract that provides insurance to members. Countries privately observe the realization of a performance variable with a verification cost that differs across countries, reflecting the “transparency” of institutions. When the level of transparency is exogenous, the optimal contract provides complete expected risk sharing across countries and states. Poor transparency and enforcement reduce consumption and result in insurance rationing. When a country can increase transparency endogenously, this generates an externality and moral hazard. We first characterize the outcome when the multilateral agency can influence members’ institutions by choosing the countries’ level of effort. Next we derive a tax/subsidy scheme that can induce countries to choose the socially optimal level. JEL Classification Numbers D8, F3 We are grateful to Biung-Ghi Ju, Ted Juhl, Donald Lien, Joseph Sicilian and Jianbo Zhang for helpful comments. We are especially grateful to an anonymous referee for comments that improved the paper substantially.     

A collateral tax sanction: When does it mimic a welfare-improving tag?

The suspension of a driver’s license or the revocation of a passport or a professional license are used by the tax authorities as sanctions for failure to comply with tax obligations and are referred to as collateral tax sanctions. In this paper, I propose a new rationale for why it may be beneficial to use collateral tax sanctions for the purpose of tax enforcement. By affecting consumption and providing enforcement targeted to a group, collateral tax sanctions may allow the government to impose punishment correlated with an individual’s earning potential. Such punishment also makes the effective tax rates correlated with an individuals’ earning potential and therefore leads to a more effective redistribution of income. I show that the use of collateral tax sanctions could increase the CES social welfare function when the skill distribution of the targeted group first-order stochastically dominates the skill distribution of the other group and the social welfare function is sufficiently concave.     

Presidential Address, Committing to Commit: Short-term Debt When Enforcement Is Costly

In legal systems with expensive or ineffective contract enforcement, it is difficult to induce lenders to enforce debt contracts. If lenders do not enforce, borrowers will have incentives to misbehave. Lenders have incentives to enforce given bad news when debt is short‐term and subject to runs caused by externalities across lenders. Lenders will not undo these externalities by negotiation. The required number of lenders increases with enforcement costs. A very high enforcement cost can exceed the ex ante incentive benefit of enforcement. Removing lenders' right to immediately enforce their debt with a “bail‐in” can improve the ex ante incentives of borrowers.     

The roles of book‐tax conformity and tax enforcement in regulating tax reporting behaviour following International Financial Reporting Standards adoption

This study investigates whether increasing the level of tax enforcement can potentially offset the primary cost of a reduction in the level of book‐tax conformity (BTC) following International Financial Reporting Standards (IFRS) adoption – increased tax avoidance. We find that after the decrease in BTC and the concomitant increase in tax enforcement that followed IFRS adoption in Israel, tax avoidance declined significantly. Our results imply that one of the primary costs of reducing BTC can be avoided. Moreover, the results suggest that rather than one strict regulatory approach to deal with reporting manipulations, a combination of trust and control is more effective and less radical.     

Insider Trading Restrictions and Analysts' Incentives to Follow Firms

Motivated by extant finance theory predicting that insider trading crowds out private information acquisition by outsiders, we use data for 100 countries for the years 1987–2000 to study whether analyst following in a country increases following restriction of insider trading activities. We document that analyst following increases after initial enforcement of insider trading laws. This increase is concentrated in emerging market countries, but is smaller if the country has previously liberalized its capital market. We also find that analyst following responds less intensely to initial enforcement when a country has a preexisting portfolio of strong investor protections.     

美国劳动所得税抵免制度及其借鉴

美国的劳动所得税抵免制度不仅是一种税收政策,更是一种反贫困的福利政策。从效率角度看,劳动所得税抵免有助于促进低收入者参与劳动;从公平角度看,劳动所得税抵免有助于扶助低收入家庭和贫困儿童,且实施成本较低。本文通过对美国劳动所得税抵免制度的制定、实施方式、发展趋势和制度影响的分析,试图为我国的个人所得税改革寻找一种新的思路。     

The welfare ranking of prices and quantities under noncompliance

We study the welfare ranking of an emission tax and emissions trading when firms self-report their emissions to the regulator and may be noncompliant. We allow for the subjective probabilities of auditing and, using conventional assumptions, find that an emission tax produces a higher level of welfare than emissions trading under noncompliance. The main driver of the result is that the compliance pattern of the firms affects the marginal compliance cost (price of emissions) in the case of permits, thus affecting the level of emissions and welfare. The result also holds when enforcement and sanctioning costs are taken into account and differs from the result found by Montero (J Public Econ 85:435–454, 2002). We also show that the ranking may be reversed if these costs are taken into account and the regulator must audit at least one firm. We also analyze the welfare ranking when the expected penalties depend on relative violations.     

Does tax avoidance increase or decrease when tax enforcement is stronger? Evidence using CSR heterogeneity perspective

Prior literature has reported mixed results on whether corporate social responsibility (CSR) activities are associated with more or less tax avoidance. These past results may be attributed to a failure to control for endogeneity between tax avoidance and CSR. We utilize an exogenous increase in tax enforcement to investigate how a heightened level of scrutiny by authorities affects tax avoidance by firms adopting CSR policies (CSR firms) compared to non-CSR firms. If stronger enforcement leads to greater tax compliance, we expect to observe a decline in tax avoidance measures in all firms. As expected, tax avoidance has decreased in non-CSR firms in response to this exogenous change, but surprisingly, in CSR firms it has increased. The results are supported by theories such as the licensing effect and organized hypocrisy. We contribute to the literature by using an exogenous shock to tax enforcement to shed light on whether CSR firms act in a socially responsible manner in their tax reporting. Moreover, we provide new empirical evidence relevant to the theory of organized hypocrisy, whereby there are notable inconsistencies between the actions that corporations take to bolster their public image and self-serving practices.     

中国企业养老保险缴费压力及其影响因素研究——基于不同类型企业的比较分析

落实2015年中央经济工作会议提出的降低企业养老保险费率的要求,需要根据不同企业的具体情况制定差异化的政策,这需要深入分析养老保险缴费对不同企业的具体影响。文章利用"中国社会养老保险缴费减免补偿研究"调查数据,运用交叉分析和多元Logistic模型,分析了中国企业养老保险缴费压力的影响因素,并对不同类型企业的情况进行了比较分析。结果表明,企业养老保险缴费率较高,占总成本的比重较大,由于用工人数增加和物价水平上涨双重因素的作用,使得劳动密集型企业面临的养老保险压力最大。养老保险缴费率、养老保险缴费占总成本的比重、用工人数、企业收益、是否享受养老保险缴费优惠等因素是造成企业养老保险缴费压力的主要原因。降低企业养老保险缴费压力需要进一步降低企业养老保险费率,使企业养老保险费占企业总成本的比重降低,促进社会经济的区域协调发展,降低劳动密集型企业的养老保险缴费压力,实行技术更新和设备升级,对于一些新型企业或暂时困难企业,实施企业养老保险费减免或延迟缴费政策。     

The Economics of Law Enforcement: Quasi-Experimental Evidence from Corporate Takeover Law

This paper examines the impact of takeover law enforcement on corporate acquisitions. We use the European Takeover Directive as a natural experiment, which harmonizes takeover law across countries, while leaving its enforcement to the discretion of individual countries. We exploit this heterogeneity in enforcement quality across countries in a difference-in-differences-in-differences model, while employing an overall inductive research approach, following Karpoff and Whittry's (2018) recommendation. We find that acquirer returns increase in countries with improvements in takeover law, driven by better target selection and lower cost of financing. The increase in acquirer returns is lower in weak enforcement jurisdictions, which we identify by developing a novel Takeover Law Enforcement Index (TLEI). The findings show that takeover law can mitigate agency conflicts, but its true value depends on its enforcement. Our results are strongly robust to alternative model specifications.     

A Cost-Benefit Analysis of the Thailand Taxpayer Survey

We investigate whether more resources should be devoted to a Thai tax enforcement program which is aimed at bringing small businesses into the tax system. We show that the appropriate criteria for determining whether more resources should be devoted to tax enforcement is whether the Atkinson–Stern condition for the optimal provision of a publicly-provided good is satisfied, or equivalently, whether the marginal cost of finds obtained through additional tax enforcement, SMCF_p, is less than the marginal cost of funds obtained through raising tax rates, SMCF_t. In our base case scenario, the SMCF_p is 11.60 which exceeds our estimate of the SMCF_t for an across-the-board increase in income tax rates on wage earners. The use of pro-poor distributional weights makes expanding the survey less attractive if the alternative way of obtaining additional tax revenue is an across-the-board income tax rate increase, while aversion to tax evasion makes it more attractive.     

WEALTH EFFECTS OF ENFORCEMENT ACTIONS AGAINST FINANCIALLY DISTRESSED BANKS

We examine the stock price reaction for a sample of commercial banks to the signing of cease-and-desist orders, written agreements, and formal agreements with bank regulators. These agreements restrict financially distressed institutions from certain activities that may be perceived by the capital markets as favorable or unfavorable. Our finding of a significantly negative mean signing-day abnormal return suggests that these enforcement actions are not fully anticipated by the market and that, on average, these enforcement actions are perceived as being unfavorable for bank shareholders. Our cross-sectional analysis suggests that at least part of the negative market reaction is caused by a reduction in the moral hazard problem associated with financially distressed federally insured commercial banks. Although these actions are beneficial to both the federal deposit insurer and ultimately taxpayers, we interpret the cross-sectional findings as implying that regulators are not acting in a timely fashion to restore the financial health of these distressed “banks. Even though equity values fall, on average, when banks are faced with an enforcement action, our findings do not support the pre-FIRREA policy not to publicly disclose the signing of enforcement actions because the enforcement action itself is not the source but is merely a reflection of the bank's problems.     

Privatización y bienestar social en el sector de hogares de ancianos en Suecia

Since the early nineties in Swedish starts a welfare state transformation process that allows the participation of private operators in sectors emblematic of the welfare state, such as education, health, child care and assistance to adults. To date, experience shows that the coexistence of private and public agent founded by the State, has not been free of obstacles. This article analyzes the problems arising on a regulated market, in which the regulator seeks to maximize social welfare, when a private operator, maximizing profits enter. We show that the participation of private operators in these markets, not necessarily leading to an improvement in social welfare, or an increase in the efficiency of the service. Achieving these goals means that the state is able to design efficient control mechanisms, which certainly has an associated cost.     

Screening, Bidding, and the Loan Market Tightness

Bank loans are more available and cheaper for new and small businesses inthe U.S. in concentrated banking areas than in competitive banking areas. Weexplain this anomaly by analyzing banks' decisions to screen projects andtheir competition in loan provisions. It is shown that, by exacerbating thewinner's curse, an increase in the number of banks can reduce banks'screening probability by so much that the number of banks that activelycompete in loan provisions falls and the expected loan rate rises. This isthe case when the screening cost is low, which induces all active bidders tobe informed. The opposite outcome occurs when the screening cost is high, inwhich case there are sufficiently many uninformed banks in bidding toattenuate the winner's curse. We also examine the social optimum     

The effects of global leniency programs on margins and mergers

In a cross‐country study, we investigate how staggered passage of national leniency programs from 1990–2012 has affected firms’ margins and merger activity. We find that these programs, which give amnesty to cartel conspirators that cooperate with antitrust authorities, reduced the gross margins of the affected firms. However, firms reacted to new regulations by engaging in more mergers that had negative effects on downstream firms. Our results imply that although these programs were generally effective, their full potential was mitigated by mergers that substitute for cartels, and that a strong merger review process might be a prerequisite for strengthening anti‐collusion enforcement.     

Mandatory IFRS Reporting around the World: Early Evidence on the Economic Consequences

This paper examines the economic consequences of mandatory International Financial Reporting Standards (IFRS) reporting around the world. We analyze the effects on market liquidity, cost of capital, and Tobin's q in 26 countries using a large sample of firms that are mandated to adopt IFRS. We find that, on average, market liquidity increases around the time of the introduction of IFRS. We also document a decrease in firms' cost of capital and an increase in equity valuations, but only if we account for the possibility that the effects occur prior to the official adoption date. Partitioning our sample, we find that the capital‐market benefits occur only in countries where firms have incentives to be transparent and where legal enforcement is strong, underscoring the central importance of firms' reporting incentives and countries' enforcement regimes for the quality of financial reporting. Comparing mandatory and voluntary adopters, we find that the capital market effects are most pronounced for firms that voluntarily switch to IFRS, both in the year when they switch and again later, when IFRS become mandatory. While the former result is likely due to self‐selection, the latter result cautions us to attribute the capital‐market effects for mandatory adopters solely or even primarily to the IFRS mandate. Many adopting countries make concurrent efforts to improve enforcement and governance regimes, which likely play into our findings. Consistent with this interpretation, the estimated liquidity improvements are smaller in magnitude when we analyze them on a monthly basis, which is more likely to isolate IFRS reporting effects.