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Why do countries mandate accrual accounting for tax purposes?

  • This study investigates why countries mandate accruals in the definition of corporate taxable income. Accruals alleviate timing and matching problems in cash flows, which smoothes taxable income and thus better aligns it with underlying economic performance. These accrual properties can be desirable in the tax setting as tax authorities seek more predictable corporate tax revenues. However, they can also make tax revenues procyclical by increasing the correlation between aggregate corporate tax revenues and aggregate economic activity. We argue that accruals shape the distribution of corporate tax revenues, which leads regulators to incorporate accruals into the definition of taxable income to balance the portfolio of government revenues and expenditures. Using a sample of 26 OECD countries, we find support for several theoretically motivated factors explaining the use of accruals in tax codes. We first provide evidence that corporate tax revenues are less volatile in high accrual countries, but high accrual countries collect relatively higher (lower) tax revenues when the corporate sector grows (contracts). Critically, we then show that accruals and smoother tax revenues are favored by countries with higher levels of government spending on public services and uncertain future expenditures, while countries with procyclical other tax collections favor cash rules and lower procyclicality of corporate tax revenues.

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Metadaten
Author:Igor Goncharov, Martin Jacob
URN:urn:nbn:de:hbz:992-opus4-6796
DOI:https://doi.org/10.2139/ssrn.1912003
DOI:https://doi.org/10.1111/1475-679X.12061
Series (Serial Number):FAccT Center Working Paper Series (03/2012)
Publisher:WHU - Otto Beisheim School of Management
Place of publication:Vallendar
Document Type:Working Paper
Language:English
Date of Publication (online):2018/06/19
Date of first Publication:2011/08/19
Release Date:2018/06/19
Tag:Ertragsglättung; Fälligkeitsbuchführung; Körperschaftssteuer; Unternehmenssteuereinnahmen
Accrual accounting; Assessment basis; Bemessungsgrundlage; Corporate tax revenue; Corporate taxation; Income smoothing
Edition:August 2014
Page Number:51, 6
Note:
Published in: Journal of Accounting Research52(2014)5, pp. 1127-1163
Institutes:WHU Centers / WHU Financial Accounting & Tax Center (FAccT Center)
JEL-Classification:H Public Economics / H2 Taxation, Subsidies, and Revenue / H21 Efficiency; Optimal Taxation
H Public Economics / H2 Taxation, Subsidies, and Revenue / H25 Business Taxes and Subsidies
M Business Administration and Business Economics; Marketing; Accounting / M4 Accounting and Auditing / M41 Accounting
M Business Administration and Business Economics; Marketing; Accounting / M4 Accounting and Auditing / M48 Government Policy and Regulation
Licence (German):Copyright for this publication