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Some corporations attempt to lessen their tax burden through involvement in the legislative process. We identify firms that contributed to congressional candidates who favor reductions in the U.S. corporate statutory tax rate. This support created a temporary incentive to manage effective tax rates (ETRs) up. We document that these firms increased their reported effective tax rate in the two calendar quarters preceding the 2012 election relative to adjacent periods and other firms supporting candidates in the same election. We find that the variation in upward ETR management is correlated with firm-level proxies for potential reputational costs, capital markets costs, and long-run tax burdens. The variation in upward ETR management is also correlated with firm-candidate-level proxies for strength of relationships and competitiveness of election races. Our findings provide new evidence on accounting choices in support of corporate political activity and on the political cost hypothesis in the tax setting. History: Accepted by Shivaram Rajgopal, accounting. Supplemental Material: The online appendix is available at https://doi.org/10.1287/mnsc.2017.2842. Keywords: corporate political activity * financial reporting choices * political costs hypothesis, 1. Introduction We test the hypothesis that firms affiliated with politicians through campaign contributions use accounting discretion during elections to avoid releasing politically damaging financial information. During an election period, [...]

In this study, we analyzed the drivers of tax evasion occurring through international trade between Benin and its major import partners, namely France--a Western country--and China, a non-Western country. To this end, we scrutinized the co-movement between tax rates and tax evasion, and investigated whether tax evasion in Benin is driven by misclassification behavior or not. Unobservable by nature, tax evasion was measured by missing imports. The results show a positive relationship between tax rates and missing imports expressed in value and in quantity on products from China. Concerning France, the relationship is positive in value but negative in quantity. These two effects combined together result in a weak tax evasion on products imported from France compared to those from China. There is evidence of misclassification only on products imported from France. Keywords: Tax evasion, tax rate, missing imports, misclassification, 1. Introduction In most countries, tax revenue is the greatest source of government revenue (Yalama & Gumus, 2013) and no government can set a tax system and then rely on [...]

With the credit-channel effect driven by the central bank's open market operations, this paper's model easily gives rise to the nonlinear inflation-growth nexus, which is evidenced by a number of cross-country empirical studies. The threshold level of the inflation rate is found to be lower when tax rates are higher. The presence of the credit-channel effect also provides the rationale for setting positive (and smaller than 1) tax rates on consumption, tabor income, and capital income. The optimal tax rates rise as the inflation target declines. Under a fiscal policy rule where labor and capital income taxes move proportionally to each other, the optimal capital income tax rate could be higher than the optimal labor income tax rate. Under a sufficiently large central bank balance sheet, the credit-channel effect will be so weak that inflation and all kinds of taxes are growth and welfare repressing. This provides a rationale for central banks that have implemented quantitative easing policies to shrink their balance sheets. (JEL E58, E62, 042), I. INTRODUCTION The optimal long-run rate of inflation has long been the main concern of monetary policymakers and researchers; see Schmitt-Grohe and Uribe (2011) for an overview. This monetary issue [...]

This paper examines how Social Security dependent benefits impact the labor supply of married women aged 25-54. Specifically, I investigate whether the decrease in the rate of return to women's work discourages them from participating in the labor force by simulating expected net payroll tax rates and dependent benefits. Dependent benefits may reduce the net return to women's work, as they usually pay the full payroll tax without receiving marginal benefits for additional earnings if they claim benefits based on their husbands' earnings records. The results show that high net payroll tax rates reduce married women's work incentives, particularly those near retirement age. (JEL H24, H55, J22), I. INTRODUCTION Since 2010, Social Security's total expenditures have exceeded the noninterest income of its combined trust funds, and the deficit is expected to rise rapidly in the future with [...]

Canadian provinces are required to phase in a minimum price of CAN $50 per tonne on carbon dioxide emissions by 2022. This paper discusses the rationale for, and design of, the price floor requirement; its (provincial-level) environmental, fiscal, and economic welfare impacts; monitoring issues; and (national-level) industry incidence. The general conclusions that the welfare costs and implementation issues are manageable, and pricing provides significant new revenues. A challenge is that the floor price by itself is well short of what will be needed by 2030 for Canada's Paris Agreement pledge. Keywords: carbon price, price floor, Canada, welfare impacts, incidence, effective carbon price, competitiveness impacts JEL Codes: Q54, Q58, H23, 1. INTRODUCTION One hundred and ninety five parties submitted pledges to reduce carbon dioxide (C[O.sub.2]) and other greenhouse gases (GHGs)--so-called 'Nationally Determined Contributions' (NDCs)--for the 2015 Paris Agreement on climate [...]

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Utilizing a natural experiment setting of the 2003 Dividend Tax Cut, this study documents that as the tax rate on dividends drops, corporate payout policy is contingent on firm's growth opportunity, shareholder rights, and their interactions. The study confirms that firms with high shareholder rights act in the interest of the shareholders. It also provides evidence that the 2003 Dividend Tax Cut helps move the cash flow out of the firms with low growth., INTRODUCTION The Job and Growth Tax Relief Reconciliation Act of 2003 (JGTRRA) has significantly dropped the tax rate on dividends. Instead of taxing dividends as ordinary income with the highest [...]

I analyze the dynamic effects of tax competition on public budget deficits. I find that stronger tax competition leads to a fiscal deficit bias at the early stages of financial liberalization. When coun tries differ in terms of capital mobility, further liberalization leads to external imbalances and diverging fiscal deficits while corporate tax rates converge. Consistent with theory, I find that stronger tax competition increases deficits in a sample of OECD countries, controlling for tax revenues and other standard determinants of fiscal deficits. (JEL E62, F62), I. INTRODUCTION The effect of financial globalization on the governments' ability to redistribute is an important yet only partially understood issue. Starting in the mid-1980s, deregulation in the financial sector [...]

The purpose of this paper is to discover and understand factors that lead to small and medium-sized enterprises (SMEs) shutdown in transitional economies, such as the economy of Bosnia and Herzegovina (B&H). The paper provides some findings about main influencing factors that lead to SMEs shut down in the first years of operation from entrepreneurs' and managers' perspective and suggests certain measures that should be taken to secure their survival, development and growth. For the purpose of this paper, empirical research was conducted, using stratified sampling of 110 SMEs from Republic of Srpska (49% of B&H territory). The section on methodology explains the entry criteria for the study population and methods of data analysis. Respondents from the research sample identified the following factors as the main obstacles to successful development of their businesses: difficulties in the collection of receivables from debtors, complicated legal procedures that regulate the work and business operations of enterprises, high rates of taxes and contributions on wages, the negative impact of the global economic crisis and expensive and complicated procedures for obtaining loans from commercial banks. Respondents didn't evaluate their personal traits, level of formal and informal knowledge from business management field or lack of entrepreneurial spirit and readiness for being proactive, innovative or risk acceptance as potential causes of business failure. With its limitation, the paper contains novel information and insights about SMEs business obstacles and challenges in economy of Bosnia and Herzegovina as a solid base for more comprehensive future researches. Key words: Small and medium-sized enterprises (SMEs), Entrepreneurship, Transition, Failure, Economic development. Ovim se radom zele otkriti i razjasniti faktori, koji vode prema zatvaranju malih i srednjih poduzeca (MSP) u tranzicijskim gospodarstvima, kao sto je ono u Bosni i Hercegovini (BiH). U radu se izlazu rezultati istrazivanja kljucnih cimbenika, koji vode zatvaranju malih i srednjih poduzeca u prvoj godini poslovanja, i to iz perspektive poduzetnika te menadzera. Predlazu se mjere, kojima bi se moglo osigurati prezivljavanje, razvoj i rast takvih poduzeca. Za potrebe ovog rada, izvrseno je empirijsko istrazivanje 110 MSP iz Republike Srpske (49% BiH). Poglavlje o metodologiji istrazivanja objasnjava kriterije za ulazak u populaciju, koja je obuhvacena studijom i metode analize podataka. Sudionici u istrazivanju utvrdili su sljedece cimbenike kao ogranicenja razvoja svog poslovanja: naplata potrazivanja, slozeni pravni postupci kojima se regulira poslovanje, visoke stope poreza i doprinosa, negativno djelovanje globalne gospodarske krize te slozene i skupe procedure dobivanja kredita od komercijalnih banaka. Sudionici istrazivanja nisu procjenjivali svoje osobne karakteristike, formalno i/ili neformalno poznavanje poslovnog okruzenja, odnosno poduzetnickog duha, proaktivnost, inovativnost, odnosno preuzimanje rizika, kao potencijalne uzroke poslovne propasti. Unutar ogranicenja, u radu se iznose nove informacije i spoznaje o preprekama i problemima MSP-ima u BiH, koja predstavljaju dobru osnovicu za buduca istrazivanja., UDC 005.7:334.722-022.51/.55>(497.6) 1. INTRODUCTION A recent report from the European Commission (2015, p. 6) finds that a minority of SMEs expands their business and the number of employees, with the [...]

Within the literature on the informal sector, there has been numerous research on the impact of labour regulation and the tax rate on productivity on the size of the informal sector (IS) and unemployment. These effects have mostly been analysed with the aid of search and matching models. However, we have observed, that the impact of labour regulation on the size of the informal sector and unemployment rate has not been estimated empirically. On the other hand, the effect of the tax rate on the size of the informal sector has been analysed with the aid of various theoretical and empirical models respectively. Our paper attempts to bridge the gap in the theoretical and empirical literature by demonstrating that a change in firing costs generates a trade off in the decision to operate in the informal sector or become unemployed. However, an increase in the tax rate on production can neutralise the impact of higher firing costs on unemployment. We use a dynamic general equilibrium model to show how a change in firing costs or tax rate affects the incentive of an agent to operate in the informal sector as well as the consequences for unemployment. The model's parameters are calibrated with values used in the general literature to demonstrate analytically the impact of firing costs and the tax rate on the size of the informal sector and unemployment. Our results show that an increase in firing costs decreases the relative size of the IS but raises the unemployment rate. However, a rise in the tax rate increases the relative size of the informal sector but reduces the unemployment rate. Next, we apply panel data analysis to estimate the effect of firing costs and direct tax for a panel of 93 countries between 2000 and 2007. We find that our empirical results are consistent with the results from our theoretical model. Our results reveals how the kind of regulation (labour or non-labour) can have a direct impact on the mobility of factors of production between the formal and informal sector respectively. It also shows how regulatory policy can be refined to maximize the trade-off between the informal sector and unemployment. JEL Classifications: J41, O17 Keywords: Firing cost, Informal sector, Tax burden, Unemployment, Labor regulation, Shadow Economy, INTRODUCTION Our paper estimates the effect of firing costs on the size of the informal sector (IS) and the unemployment rate. We show that higher firing costs has a significant [...]

The root of the Baumol cost disease is higher productivity increases for manufactured goods than for services. The implied increase in relative costs of service production is widely claimed to have devastating implications for the public sector as a provider of tax-financed services such as health, education, and care. To match the increasing costs it appears inevitable that tax rates would be ever increasing. It is shown that this inference does not follow under standard assumptions when accounting explicitly for service provision from both the private and public sectors. Strikingly under assumptions often made in the literature, the welfare maximizing tax rate for a utilitarian policy maker would remain constant despite the Baumol cost disease, and by implication the share of public employment in total employment will remain constant. (JEL H5, H11, O41), I. INTRODUCTION The origin of the Baumol cost disease is lower (none) productivity growth for services than for manufactures (the 'progressive' sector), see Baumol and Brown (1966) and Baumol (1967). [...]