95,528 research outputs found

    Does the sole description of a tax authority affect tax evasion? The impact of described coercive and legitimate power.

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    Following the classic economic model of tax evasion, taxpayers base their tax decisions on economic determinants, like fine rate and audit probability. Empirical findings on the relationship between economic key determinants and tax evasion are inconsistent and suggest that taxpayers may rather rely on their beliefs about tax authority’s power. Descriptions of the tax authority’s power may affect taxpayers’ beliefs and as such tax evasion. Experiment 1 investigates the impact of fines and beliefs regarding tax authority’s power on tax evasion. Experiments 2-4 are conducted to examine the effect of varying descriptions about a tax authority’s power on participants’ beliefs and respective tax evasion. It is investigated whether tax evasion is influenced by the description of an authority wielding coercive power (Experiment 2), legitimate power (Experiment 3), and coercive and legitimate power combined (Experiment 4). Further, it is examined whether a contrast of the description of power (low to high power; high to low power) impacts tax evasion (Experiments 2-4). Results show that the amount of fine does not impact tax payments, whereas participants’ beliefs regarding tax authority’s power significantly shape compliance decisions. Descriptions of high coercive power as well as high legitimate power affect beliefs about tax authority’s power and positively impact tax honesty. This effect still holds if both qualities of power are applied simultaneously. The contrast of descriptions has little impact on tax evasion. The current study indicates that descriptions of the tax authority, e.g., in information brochures and media reports, have more influence on beliefs and tax payments than information on fine rates. Methodically, these considerations become particularly important when descriptions or vignettes are used besides objective information

    Dividend Policy Inside the Multinational Firm

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    This paper examines the determinants of profit repatriation policies for US multinational firms. Dividend repatriations are surprisingly persistent and resemble dividend payments to external shareholders. Tax considerations influence dividend repatriations, but not decisively, as differentially-taxed entities feature similar policies and some firms incur avoidable tax penalties. Parent companies requiring cash to fund domestic investments, or to pay dividends to common shareholders, draw on the resources of their foreign affiliates through repatriations. Incompletely controlled affiliates are more likely than others to make regular dividend payments and to trigger avoidable tax costs through repatriations. The results indicate that traditional corporate finance concerns - taxation, costly external finance, and agency problems - are also critical to the internal capital markets of multinational firms

    “Value Added Taxes, Chain Effects and Informality”, Second Version

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    This paper investigates determinants of informal economic activity. We present an equilibrium model of informality and test its implications using a survey of 48,000+ small firms in Brazil. We define informality as tax avoidance; firms in the informal sector avoid tax payments but suffer other limitations. A novel theoretical contribution in this model is the role of value added taxes in transmitting informality. It predicts that the informality of a firm is correlated to the informality of firms from which it buys or sells. The model also implies that higher tolerance for informal firms in one production stage increases tax avoidance in downstream and upstream stages. Empirical analysis shows that, in fact, various measures of formality of suppliers and purchasers (and its enforcement) are correlated with the formality of a firm. Even more interestingly, when we look at sectors where Brazilian firms are not subject to the credit system of value added tax, but instead the value added tax is applied at some stage of production at a rate that is estimated by the tax authorities, this chain effect vanishes.Informal Sector, VAT, Tax Avoidance

    Value Added Taxes, Chain Effects and Informality

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    This paper investigates determinants of informal economic activity. We present an equilibrium model of informality and test its implications using a survey of 48,000+ small firms in Brazil. We define informality as tax avoidance; firms in the informal sector avoid tax payments but suffer other limitations. A novel theoretical contribution in this model is the role of value added taxes in transmitting informality. It predicts that the informality of a firm is correlated to the informality of firms from which it buys or sells. The model also implies that higher tolerance for informal firms in one production stage increases tax avoidance in downstream and upstream stages. Empirical analysis shows that, in fact, various measures of formality of suppliers and purchasers (and its enforcement) are correlated with the formality of a firm. Even more interestingly, when we look at sectors where Brazilian firms are not subject to the credit system of value added tax, but instead the value added tax is applied at some stage of production at a rate that is estimated by the tax authorities, this chain effect vanishes.Informal Sector,VAT,Tax Avoidance

    Fundraising Behaviors of Listed Companies in Vietnam: An Estimation of the Influence of Government Ownership

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    This study investigates the capital structure and investment activities of listed companies on the Hanoi Securities Exchange and the Ho Chi Minh Securities Exchange in Vietnam. Estimation analysis using panel data covering the four-year period 2006-2009 revealed the following results. (1) Standard corporate financing theories such as trade-off theory and agency cost theory could be appropriate for explaining the capital structure of listed companies in Vietnam. (2) Compared to the fundraising activities of the companies analyzed by Nguyen (2006) and Biger et al. (2008), the fundraising activities of the listed companies were better explained by standard agency cost theory. (3) There are differences between the determinants of long-term fundraising and short-term fundraising of listed companies in Vietnam. (4) The fundraising determinants of state-controlled companies are different from those of other companies; state-controlled companies have an advantage in tapping external debt funds, and their incentive to reduce their tax payments by debt financing is weaker. (5) The companies listed on the Ho Chi Minh Securities Exchange depended less on debt financing than those listed on the Hanoi Securities Exchange. (6) Listed companies in Vietnam face weak incentives to reduce their tax payments by debt financing because the effective corporate tax rate is low. These results imply that the economic reforms (“Doi Moi”) implemented by the Vietnamese government, which aims to create an economic system based on market mechanisms, have achieved some of their goals in terms of fund mobilization and corporate financing. However, our estimation study illustrates several limitations of economic reforms, such as the opaque relationship between state-controlled companies and government banks, financial restrictions on investment activities, and inactive investment of companies that are state-controlled or listed on the Ho Chi Minh Securities Exchange.Corporate Finance, Capital Structure, Transition Economy, Vietnam

    Financial Development and the Underground Economy

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    We provide a theoretical and empirical study of the relation between financial development and the size of the underground economy. In our theoretical framework agents allocate investment between a low-return technology which can be operated with internal funds, and a high-return technology which requires external finance. Firms can reduce the cost of funding by disclosing part or all of their assets and pledging them as collateral. The disclosure decision, however, also involves higher tax payments and reduces tax evasion. We show that financial development (a reduction in the cost of external finance) can reduce tax evasion and the size of the underground economy. We test the main implications of the model using Italian microeconomic data that allow us to construct a micro-based index of the underground economy. In line with the model’s predictions, we find that local financial development is associated with a smaller size of the underground economy, controlling for the potential endogeneity of financial development and other determinants of the underground economy.Underground Economy, Financial Development.

    Political risk assessment in the Czech Republic

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    This paper seeks to conceptualise a new approach to the identification of the factors influencing the adoption of a political risk assessment (PRA) function. The research population will comprise a convenience sample of Czech international firms. The information whether or not a firm has set up a PRA function will be obtained via a questionnaire survey. By making use of firm value maximization and risk aversion and considering the rationale for risk management activities: (i) reducing the expected costs of financial distress; (ii) reducing the risk premiums payable to various partners; (iii) increasing investment possibilities; and (iv) reducing expected tax payments, we develop a number of determinants which be employed in PRA studie

    On the user cost and homeownership

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    This paper studies the determinants of housing tenure choice and the differences in the cost of housing services across households in an overlapping generations model with household-specific uninsurable earnings risk and housing prices that vary over time. We model houses as illiquid assets that provide collateral for loans. To analyze the impact of preferential housing taxation on the tenure choice, we consider a tax system that mimics that of the U.S. economy in a stylized way. We find that a mixture of idiosyncratic earnings uncertainty, house price risk, down payments and transaction costs are needed for the model to deliver life cycle patterns of homeownership and portfolio composition similar to those found in the data. Through simulations, we also show that a rental equivalence approach (relative to a user cost approach) overestimates the mean unit cost of housing by approximately 3 percent
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