Keeping It Off The Books: An Empirical Investigation Into the Characteristics of Firms That Engage In Tax Non-Compliance

We investigate firm tax noncompliance using a survey of firms from around the world. Overall, we find that small firms are less and large firms are more compliant. Foreign owned firms, exporters and firms that have audited finance statements are also more compliant, as found by others, but, quite surprisingly, government ownership is insignificant. Not surprisingly, organized crime, high taxes, and government corruption all result in lower compliance. Finally, we find that firms around the world engage in tax noncompliance but, holding all else constant, compliance in highest in OECD countries and the lowest in Latin American, African & Middle Eastern countries.Underground Economy, Tax Noncompliance, Firm Characteristics, Interval Regression

Nonparametric expenditure-based estimation of income under-reporting and the underground economy

There is considerable interest in measuring the underground economy using microeconomic data. One such method estimates income under-reporting by households by assuming a known, parametric form of the Engel curve and making the further parametric assumption that households under-report their income by a constant fraction, independent of income. This paper proposes a nonparametric approach which avoids functional form restrictions and enables the reporting function to vary across income levels and household characteristics. I illustrate by estimating the effect of the Canadian Goods and Services Tax on income under-reporting.

Do Insiders Comply with Disclosure Rules? Evidence from Canada, 1996-2011

The disclosure of information on the granting of stock options as part of senior managers’ compensation packages can be a cumbersome and patchy process in terms of both regulatory compliance and public accessibility. Closing the gaps to make the reporting and accessing of data less unwieldy and more timely, efficient and accurate, should be a priority for securities regulators Firms are required to disclose the issuing of stock options to their highestlevel executives in their annual information circulars. Slight additions made to the information provided in the circulars, such as stock option grant dates, would greatly improve corporate transparency. Insiders also need to be educated on their duty to file, as they bear a fair amount of the responsibility for the problems in the system. Insiders’ lack of awareness about compliance contributes to discrepancies between insider disclosure and company disclosure, and creates information gaps. Misfiling, failure to file, and late filing of data — which can be a chronic problem — further hamper the disclosure process. Add to this the issue of limited accessibility created by a frustrating lack of linkage between databases and a paucity of online searchability capacity. This paper’s research shows that compliance levels are quite high in regards to reporting of information in proxy circulars. However, 12 per cent of stock option awards are not made public outside of the circulars, with 10 per cent of awards to CEOs, nine per cent to CFOs and 15 per cent to VPs going unfiled. The incidence of unfiled reports also includes 22 per cent of insiders for whom stock options are the only award. Equally worrisome is the fact that 26 per cent of insiders have at least one option award that goes unreported and nearly eight per cent of insiders never file. Some 34 per cent of insider awards are filed with information that differs from the data reported in the firm’s information circular. Confusion and procedural ignorance about compliance on the part of insiders contribute to such discrepancies. The System for Electronic Document Analysis and Retrieval (SEDAR), the continuous disclosure database that firms use, cries out for modernization. Not only does its archaic reporting system limit its accessibility, but it functions separately from the database insiders use, the System for Electronic Disclosure by Insiders (SEDI). Linking the two databases would streamline insider filing requirements, increase compliance with insider disclosure, and improve the audit and compliance function of the securities regulators. The financial penalties for non-compliance or irregularities should be an incentive for both insiders and issuers to educate themselves and ensure they are meticulous in producing error-free, timely data and in making those data public. Unfortunately, enforcement is inconsistent. Currently, penalties tend to be applied only if another serious regulatory breach accompanies the misfilings, late filings or chronic nonfilings. Canada’s disclosure system needs fixing and streamlining in order to achieve the highest level of transparency on executive compensation. Some of these fixes are simple, others may be costly, but if improvements are not made, the system’s integrity, along with shareholder and public confidence, risk being seriously compromised

The Tax Treatment of Non-Renewable Resource Exploration Expenditures in Canada: A Historical Review and a Way Forward

The Canadian Income Tax Act recognizes three main types of expenses incurred in Canada by firms principally engaged in mineral, metal, petroleum, and natural gas. These are Canadian Exploration Expenses (CEEs), Canadian Development Expenses (CDEs), and Canadian Oil and Gas Property Expenses (COPGE). The Income Tax Act permits these expenses to be deductible from income for tax purposes to varying degrees of generosity. CEEs are 100% deductible from income while CDEs and CPOGEs are generally deductible at a declining balance rate of 30% or 10% per year respectively., Canada’s new federal government has proposed to change the deductibility of CEEs, a change that potentially has wide-reaching implications for Canada’s energy and resources sector. In particular, the government has committed to phasing out subsidies for the fossil fuel industry, the first step of which is to only allow the use of the CEE deduction for unsuccessful exploration. The Liberal proposal raises important considerations about the tax treatment of exploration expenses. First, what is the background of and justification for the current tax treatment of these expenses? Second, in what way could the CEE expense be considered a subsidy? Third, what are some of the real implications of the proposal? To analyze this issue, I first lay out the history regarding the tax deductibility of resource expenses in Canada, detailing how the existing tax treatment can be considered preferential. The preferential tax treatment for exploration and development expenses then laid the ground work for the flow-through share regime, which flows the deduction through to investor’s in exchange for equity investment. The second section details the history of the flow-through share regime, showing how the FTS regime is not only based on a tax preference but also is itself preferential tax treatment. The third section lays out the justifications for the tax preferences for both exploration and development expenses and the FTS regime. The paper then addresses the evidence for the justifications for the preferential tax treatments. Finally, the paper considers the outstanding questions from the Liberal proposal as well as the implications the proposal has. Poignantly, the proposal as it stands will lead to the demise of the FTS regime and the implications of this will need to be addressed by the government if it proceeds with its proposal. The paper ends with some concluding remarks

Non-tax Revenue for Funding Municipal Governments: Take-up, Constraints, and Emerging Opportunities

What are user levies? How do they differ from a tax? When are user levies an appropriate or preferred policy instrument? What are the trends in user levies across Canada? What are the implications for municipal activities and budgets? How can user levies be used by municipal governments in relation to emerging pressures? This chapters will document the increasing reliance on user levies by municipal governments in Canada compared to the provincial and federal governments and show that this increasing reliance is generally consistent across Canada. It will outline reasons for the increasing reliance. The paper will clarify the legal definitions and limitations on user levies in Canada and what this mean for the design and implementation of these levies. Finally, the paper will explore both existing and emerging opportunities for the employment of user levies using case studies and present areas of potential concern along with suggestions for improvement

User charges for Municipal Infrastructure in Western Canada

There has been an increasing reliance on the user-pay model to fund municipal infrastructure in Canada. User fees as a source of own-source municipal revenue have more than tripled since 1965 (Tindal et al. 2012, p. 262). However, the application of the user-pay model is constrained by two important factors. First, user charges have very specific legal constraints on them that may be at odds with the nature of the specific infrastructure for which funds are being sought. Second, municipal government is known as the “the most varied form of government in Canada” (Treff and Ort 2013, p. 1:3) which makes it difficult to not only make comparisons of the use of user charges both within and across jurisdictions, but also to make sweeping conclusion about the best way for all municipalities to fund their infrastructure priorities. These characteristics and constraints mix together to provide a complicated landscape within which municipal infrastructure needs can be and are financed and leads to diverse approaches to financing municipal infrastructure in Canada. In addition, it explains why many municipalities may not adhere to the best practices as outlined in the literature. This paper examines some of the general considerations regarding the constraints on user charges along with specific contextual environments regarding the municipal user charges in Western Canada. The paper begins by setting out the constraints that user charges must meet regardless of jurisdiction and then considers the specific jurisdictional constraints in two Western provinces. The discussion focuses on Alberta and British Columbia as these two provinces, despite being neighbours, have very different environments within with municipalities operate leading to different reliance on and uses of user charges. The paper concludes by discussing some of the comparative complications that arise

Igniting an Intersectional Shift in Public Policy Research (and Training): Canadian Public Policy Special Lecture

Throughout the 2010s, a major focus of public policy and public policy debates was about understanding the sources of inequality and understanding the role of government in addressing income inequality. While progress has been made, significant gaps in inequality remain; gaps that go well beyond income inequality and which were emphasized throughout the COVID-19 pandemic. The experiences of the pandemic have served as a reminder that individuals in society have distinct experiences, and that attention to inequality and diversity needs to be seriously incorporated into modernized policy frameworks. As governments commit to a fair recovery from COVID-19, and society is more hopeful for a more just society, what is required is a much more inclusive approach to policy analysis in order to address longstanding failures of the economy and society. In particular, modernized policy frameworks need to be more representative of, and attentive to, the experiences and struggles of marginalized and underrepresented populations. Intersectionality is an analytical tool rooted in the social justice paradigm that makes clear the links between notions of identity and the systems of power through which they play out. Intersectionality considers the ways in which our identities are formed at the intersections of various social constructs, such as race, ability, class and gender, and within broader contexts and structures of power, such as the labour market and government institutions. Fully integrating intersectionality into policy analysis could create a policy analysis structure that would advance policy agendas of diversity, inclusion, and inclusive growth

Who Pays for Municipal Governments? Pursuing the User Pay Model

It is undeniable that the goods, services, and privileges that municipalities provide are vital for Canadians’ well-being and that municipalities are facing increasing pressure to provide more infrastructure and services to more Canadians at a higher level of service. In order to provide this infrastructure and these services, however, municipalities have to increasingly find a way to pay for them. The key challenge then becomes, how do cities pay for these services and infrastructure? How do cities raise enough revenue to deliver these high-quality public services that will attract and retain businesses and residents in a way that does not undermine their competitive advantage and that is fair, accountable, equitable, and within their authorities? As it turns out the answer to this question is “wherever possible, charge.” That is, where possible, the direct users should pay the cost of providing municipal services. The rest of this chapter will outline what are the two main funding choices, property taxes and user levies, for Canadian municipalities and why. If the choices for municipalities for its own source revenues are between property taxes and user levies, what are these instruments? If the choice then is between user levies and property taxes, what has been the take up of these revenue instruments by municipalities in Canada and what might be driving these decisions? Finally, which revenue tool is preferred and why, using the principles tax fairness, tax accountability, and tax equality? In essence, it boils down to establishing a strong link between expenditures and revenues, leading to a preference for user levies