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(2014)
A growing body of literature investigates the interaction of changes in accounting standards with institutions such as investor protection laws and corporate governance mechanisms. We examine the unintended consequences of fair value accounting in determining mandated preferred dividends. We study the case of Russian energy conglomerate UES, which had a good corporate governance track record and a consistent dividend history. Following its adoption of fair value accounting, UES reported the highest quarterly profit in world corporate history, but it subsequently omitted dividends for all its shareholders. The case analysis suggests that the transitory nature of fair value adjustments and the interaction with the investment policy were important considerations in justifying the dividend omission. The reduction in preferred dividends was not offset by any capital gains, and led to a wealth transfer from preferred to ordinary shareholders. Thus, requiring the use of fair value accounting when determining the dividend distribution base can lead to unintended consequences, and increase agency costs for minority shareholders.
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.
This paper studies the cross-base tax elasticity of capital gains realizations to labor income taxes when capital gains are taxed at a separate proportional tax rate. Using a longitudinal panel of over 265,000 individuals in Sweden, this paper shows in a regression kink design that labor income taxes affect capital gains at the extensive and intensive margins. An increase in the marginal labor income tax rate increases the likelihood of realizing capital gains and the amount of realized capital gains. One implication of this result is that the excess burden of labor income taxation is affected by cross-base tax elasticities.
whether the moral evaluation of tax evasion is subject to a self-serving bias. We find that tax morale is egoistically biased: Subjects with the opportunity to evade taxes judge tax evasion as less unethical as opposed to those who cannot evade. The detection probability does not affect this result. Further, we do not find moral spillover effects, for example, on legal activities.