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The Ef ect of Public Disclosure on Reported Taxable Income: Evidence from Individuals and Corporations in Japan
Abstract
The behavioral response to public disclosure of income tax returns figures prominently in policy debates about its advisability. Although supporters stress that it encourages tax compliance, policy debates proceed in the absence of empirical evidence about this, and any other, claimed behavioral impact. This paper provides the first such evidence by examining the behavioral response to the Japanese tax return public notification system. The analysis suggests that, when there is a threshold for disclosure, a non-trivial number of both individual and corporate taxpayers whose tax liability would otherwise be close to the threshold will underreport so as to avoid disclosure, provoking a response of the opposite direction than what supporters stress. An analysis of corporations’ financial data offers no evidence that these companies’ taxable income declined after the end of the disclosure system.
... Gao, Wu and Zimmermann (2009) show that some firms undertook less investment and paid more cash to shareholders to remain under a threshold of public float to avoid full compliance with the Sarbanes-Oxley Act in the US. Hasegawa et al. (2013) investigate the effects of the-now abolished-public disclosure of both corporate and personal income tax information in Japan. Missing mass just above the disclosure threshold defined over taxable income for corporations indicates that some corporate and private taxpayers avoided disclosure. ...
... As Hasegawa et al. (2013), Hoopes et al. (2018), and Bernard et al. (2018), this paper also investigates regulatory avoidance in response to increasing tax transparency. However, BEPS CbCR is unique in several key characteristics. ...
... This new transparency may reduce profit shifting opportunities of MNEs and increase tax costs of MNEs (see Joshi, 2020). The fact that Hasegawa et al. (2013) do not find a change in tax aggressiveness underlines this difference in the settings. Second, the CbCR information is not published but only made available to tax authorities, potentially reducing reputational and competitive costs of reporting companies which could be important in settings where tax information is published (see Andreicovici, Hombach & Sellhorn, 2023;Rauter, 2020). ...
This paper investigates regulatory avoidance in the context of private country-by-country reporting (CbCR) introduced as part of the OECD/G20 BEPS initiative. The reporting framework requires multinational companies above a revenue threshold to provide tax authorities with new and detailed information on their global activities, but the data are not made publicly available. I find robust evidence for an increase in mass below the revenue threshold after the introduction of CbCR in line with an avoidance response. Company types for which CbCR would imply relatively high costs including private companies or more tax-aggressive firms show a stronger avoidance response. The heterogeneities found can at least partially be explained by an analysis of increases in tax costs. The finding of regulatory avoidance of multinational enterprises in response to a fixed revenue threshold is of additional relevance in light of the international tax reform agenda which relies on similar thresholds.
... Como recordaban Hasegawa et al. (2012), la divulgación de los datos fiscales ha sido práctica habitual en algunos países como Francia, Italia, Japón o EE.UU. en distintos periodos de su historia. ...
... (21) Véase Bø et al. (2015). En este contexto Hasegawa et at. (2012) recuerdan que es necesario indicar que «However, these analyses, and the policy debate surrounding them, have proceeded in the complete absence of empirical evidence about the effects of income tax disclosure, so that any arguments supporting or opposing disclosure are necessarily made in complete ignorance of empirical data or actual o ...
... Estos resultados mejoran notablemente los obtenidos por Olivares Olivares (2019), en su investigación del seguimiento a corto plazo (2015)(2016)(2017). Asimismo, también son coherentes con los hallazgos de la investigación de campo sobre este asunto (así Bø et al., 2015y Hasegawa et al., 2012 y con los obtenidos en el laboratorio (véase Alm et al., 2016;Coricelli et al., 2010;Fortin et al., 2007y Laury y Wallace, 2005. ...
RESUMEN El presente documento contiene los resultados de un estudio longitudinal realizado durante cinco años (2015-2019), en el que se estudia el comportamiento de los contribuyen-tes incluidos en la lista de incumplidores relevantes a la Hacienda Pública. A partir de los datos obtenidos mediante el análisis estadístico, se estudia, desde la perspectiva del Derecho Tributario y los principios de la Psicología aplicada al comportamiento de los contribuyentes, la efectividad real de dicho listado. La investigación introduce propuestas de mejora técnica de la norma, partiendo de la evidencia empírica para incrementar su eficacia y el cumplimiento de sus objetivos, ponderando los bienes jurídicos implicados, especialmente, el derecho a la protección de datos personales. Palabras clave: Eficacia de la divulgación de los deudores relevantes, Hacienda Pública, Administración tributaria, protección de datos, Psicología. (*) El presente artículo se ha realizado en el marco del proyecto de investigación: «Asimetrías en la tutela de la Hacienda Pública: La protección de los fondos públicos y el control del fraude, el dispendio y la corrupción». Referencia: PID2019-109195RB-I00, dirigido por el Dr. Miguel Ángel Martínez Lago y el Dr. José Manuel Almudí Cid. Los resultados de investigación obtenidos han
... Such transparency may even influence policymaking because people have a tendency for inequality aversion (Fehr and Schmidt 1999). Furthermore, transparency policies surrounding salaries have drawn growing public attention and have been examined in various countries such as the United States (Mas 2017), Canada (for example, Gomez and Wald 2010;Dobrescu et al. 2014), Norway (Bø et al. 2015), China (Juang et al. 2018), and Japan (Hasegawa et al. 2013). Many studies also report that an increase in transparency is observed to reduce income that is subject to disclosure (Juang et al. 2018;Mas 2017). 1 From the classical viewpoint of public choice, an innate lack of incentives to maximize profit might make government organizations less efficient (Buchanan and Wagner 1977). ...
... Consistent with this view, it is reported that the public disclosure of politicians' incomes leads to lower perceived corruption and more efficient government (Djankov et al. 2010). 2 It is also known that fiscal transparency reduces public debt and deficit (Alt and Lassen 2006). Although income transparency may provoke serious concerns about privacy (Hasegawa et al. 2013;Bø et al. 2015), it is accepted that transparency has the abovementioned benefits. ...
... Furthermore, since 1998, local governments in Japan have increasingly 1 In contrast, there have been cases where an increase in transparency resulted in increased disclosed income (Craighead et al. 2004;Gelinas et al. 2009). Other effects such as underreporting one's income (Hasegawa et al. 2013) or deterrence (Bø et al. 2015) are also reported. 2 In private firms, mandated information disclosure has been reported to increase a firm's stock returns (Greenstone et al. 2006). ...
This paper attempts to investigate how information transparency affects human behavior. Thus, we empirically examine the influence of information disclosure ordinances on the income of mayors and chief executives in local governments in Japan. For the estimation, we use panel data of local governments covering 1999–2010, during which time many local governments implemented such ordinances. The key finding is that the income of mayors and chief executives in local governments decreased after the implementation of the ordinances. Furthermore, as the years passed, the income declined further. Hence, information disclosure regarding local government reduces the income of top officials and its influence becomes greater over time. Although the income of mayors and chiefs executives is open information without the need for an ordinance, it provided transparency regarding their work performance. Furthermore, the effect of the ordinance did not depend on the mayors or chief executives’ income level in 1999. Therefore, the reduction of income is mainly due to the government’s accountability rather than citizens’ inequality aversion.
... Prior archival evidence on the effect of public tax disclosure is scarce and provides mixed evidence. Hasegawa, Hoopes, Ishida, and Slemrod (2013) use Japanese data where disclosure of both individual and corporate income tax information was mandatory from 1950 until 2004. These data show no evidence that companies reduced declared taxable income after the disclosure requirement was abolished in 2004. ...
... To our knowledge, there exists neither a theoretical study that incorporates both these effects simultaneously nor an empirical study of public tax disclosure that evaluates the relative strength of the contagion and the shame effect on tax compliance. However, besides the already cited archival studies of Hasegawa et al. (2013) and Bø et al. (2015), Perez-Truglia and Troiano (2016) conduct a field experiment in which they sent letters to tax delinquents in three states of the United States to measure repayment rates depending on different information levels on shaming penalties, financial penalties, and peer comparisons. They only find a shame effect for those tax delinquents who owe smaller debt amounts. ...
... Overall, evidence on the effect of tax publicity is rare and the data available are ambiguous. While Laury and Wallace (2005) find only a weak effect from tax publicity and Hasegawa et al. (2013) as well as Bosco and Mittone (1997) find no deterrent effect from tax publicity, the results of Bø et al. (2015) and Coricelli et al. (2010) indicate that abolishing tax privacy laws could increase tax compliance. Moreover, the consequences of different sorts of tax publicity are unclear. ...
In this paper, we use a tax compliance game with a public good to investigate the impact of public disclosure on tax evasion behavior experimentally. Three different types of tax privacy are tested, ranging from complete privacy to full disclosure. We expect two different effects: first, a contagion effect, arising when an individual observes non-compliance of other individuals and therefore reduces her own tax compliance; second, a shame effect of increased tax compliance due to the anticipated shame of being declared a tax evader. Both these effects are supported by the experimental results. However, the shame effect reduces tax evasion only in the short run. The influence of shame diminishes over the course of the experiment with subjects observing the non-compliance of other participants. Thus, our results indicate that when the contagion and the shame effect are present the latter is not strong enough to override the former in the long run. Furthermore, disclosing tax information anonymously increases tax evasion compared to providing no information on tax evasion behavior. These observations are of particular importance for tax policy because public disclosure may lead to more evasion instead of less when supporting a crowding-out of the tax morale.
... Such transparency may even influence policy making because people have a tendency of inequality aversion (Fehr and Schmidt 1999). Furthermore, transparency policies surrounding salaries have drawn growing public attention and have been examined in various countries such as the United States (Mas 2017), Canada (e.g., Gomez and Wald 2010;Dobrescu et al., 2014), Norway (Bø et al. 2015), China (Juang et al. 2016), and Japan (Hasegawa et al. 2013). Many studies also report that an increase in transparency is observed to reduce incomes that are subject to disclosure (Juang et al. 2016;Mas 2017). 1 From the classical viewpoint of public choice, an innate lack of incentives to maximize profit might make government organizations less efficient (Buchanan and Wagner,1977). ...
... Consistent with this view, it is reported that the public disclosure of politicians' incomes leads to lower perceived corruption and more efficient government (Djankov et al. 2010). 2 It is also known that fiscal transparency reduces public debt and deficit (Alt and Lassen 2006). Although income transparency may provoke serious concerns about privacy (Hasegawa et al. 2013;Bø et al. 2015), it is accepted that transparency has the abovementioned benefits. ...
... An increase in the market share of local 1 In contrast, there have been cases where an increase in transparency resulted in increased disclosed income (Craighead et al. 2004;Gelinas et al. 2009). Other effects such as underreporting one's income (Hasegawa et al. 2013) or deterrence (Bø et al. 2015) are also reported. 2 In private firms, mandated information disclosure have been reported to increase a firm's stock returns (Greenstone et al. 2006). ...
In this article, I explore the interaction effects of social networks and local spillovers in the diffusion of computers using the panel data from 47 Japanese prefectures for the years 1988-2000. Controlling for unobserved prefecture-specific fixed effects and an endogeneity bias of the lagged dependent variable (the computer possession rate), I find that people are more likely to own computers in areas where the possession rate of computers is higher and where social networks are more strongly connected. Further results suggest a robust complementarity between existing computer owners and the social network. Overall, the empirical study provides evidence that the people learn from neighbours who own computers via a social network enhancing spillovers and reducing transaction costs. That is, the social network reduces the cost of being acquainted with experienced computer owners and so being able to learn from them, thereby attracting new adopters.
... 5 Specific regulation requires (new) information to be made public to stakeholders (e.g., segment disclosure, uncertain tax positions, etc.). European banks were the first worldwide to join to this new mandatory disclosure on a country-by-country basis (Hasegawa et al., 2013;Hope et al., 2013;Dyreng et al., 2016;Hoopes et al., 2018;Overesch and Wolff, 2021). ...
... At the same time, a further regulatory initiative on mandatory geographic disclosures requires public disclosure of important tax, operational, and financial metrics on a country-by-country basis for all financial institutions. European banks were the first worldwide to join to this new mandatory disclosure on a country-by-country (CbCR disclosure) basis wishing an immediate impact on banks' tax avoidance if banks anticipate public scrutiny (Hasegawa et al., 2013;Hope et al., 2013;Dyreng et al., 2016;Hoopes et al., 2018;Overesch and Wolff, 2021). 11 Among the CRD IV law process debated at length at the European institutions, we could identify 15 events corresponding to the announcement of every single regulatory step from 2011 to 2013 based on what the legislative observatory of the European Parliament presents (see Appendix I). ...
... 2 However, most countries keep individual taxpayer information confidential or restrict public access, likely to protect privacy. Empirical evidence from Japan in Hasegawa et al. (2013) suggests privacy costs for taxpayers whose identities are made public, regardless of their compliance with tax obligations. 3 Therefore, public disclosure of taxpayers' identities could be a subject of dispute among individuals concerned about invasion of privacy, even though the disclosure is limited to tax evaders under the naming-and-shaming policy. ...
... 3 In Japan, from 1947 to 2005, taxpayers with taxable income exceeding 34,000,000 yen had their taxable income or tax liability publicly disclosed, along with their name and address. Hasegawa et al. (2013) provide empirical evidence indicating that a significant number of taxpayers with taxable income just above the threshold value (34,000,000 yen) underreported their income to avoid publicizing their private information. ...
This study examines the impact of public disclosure of tax information on tax compliance using simulation experiments utilizing agent-based modeling. We investigate two scenarios: (i) partial disclosure, in which tax returns and audit results are made public without taxpayer identities, and (ii) full disclosure, in which this information is publicized with taxpayer identities. Our simulation results reveal that in the partial disclosure scenario, the effect on tax compliance is contingent upon the social state of individual moral values regarding tax payment. Specifically, partial disclosure has a positive impact on tax compliance when taxpayers exhibit a relatively strong moral consciousness and a negative impact when their moral consciousness is weak. In the full disclosure scenario, when the moral consciousness of the population is sufficiently weak, the average reported income decreases despite the positive effect of the naming-and-shaming policy on tax compliance.
... First, we compared TD and TP with a previous study by (Mgammal, 2015(Mgammal, , 2020 to better understand TD issues. Second, we verified the association between TD and CG and compared it with previous studies by (Hasegawa et al., 2013) to establish the direct effect of CG on TD. Finally, we will investigate the relationship between TD, TP, and CG to understand CG's role as a moderator and mediator in the TD-TP relationship, as shown in Figure 2, and the theoretical framework is illustrated in Figure 3. ...
... Moreover, Desai and Dharmapala (2008) establish that internal factors control how a corporation discloses taxes. If corporations' tax information is made public, it may reduce explicit tax evasion, increase tax compliance, or encourage businesses to be less inclined to establish business sites for TP within the confines of the law (Kornhauser, 2005;Hasegawa et al., 2013). The association between TP and TD can be best understood with CG mechanisms (Lenter et al., 2003). ...
This study analyzes the moderating, mediating, and direct effects of corporate governance (CG) proxy mechanisms on the relationship between tax planning (TP), measured by effective tax rate components, and tax disclosure (TD). We tested the hypotheses using a 4-step hierarchical regression with Malaysian-listed non-financial companies using a balanced sample of 858 observations. We found that companies positively assessed their TP activities. Inspection of the implications of CG mechanisms as moderation on TP-TD association displayed the absence of an important constant correlated to any of the interactive variables. This makes it difficult to understand the nature of this relationship. The results illustrate the high and significant mediated impact of board compensation (BCOMS) on the TP-TD association. We further studied the sensitivity of the results and the outcomes were examined for the robustness and strength of the model specification using OLS effect estimators and the absence of TP-related factors. These test findings show no effect on the TP-TD association. This study shows that firms try to avoid taxation as far as possible by disclosing relevant tax information. These results suggest that firms express a trade-off between tax advantages and TD when choosing their TP. It meaningfully subsidizes the argument about TD concerning “comply-or-explain”, as the CG Code proposes.
... Accounting research has also called for the disclosure of some TRI, noting the difficulties investors face in determining companies' tax positions from their financial statements and in valuing tax information (e.g., McGill and Outslay 2004;Hanlon 2005;Morris 2015). However, limited empirical evidence exists regarding the benefits and costs of public tax return disclosure (Hasegawa et al. 2013;Bø et al. 2015;Hoopes et al. 2018). I contribute to this debate by providing empirical evidence on a significant issue raised in the debate: Do tax returns help equity investors with firm valuation? 2 Tax returns may not help investors with valuation. ...
... However, empirical examination of many of these benefits and costs is limited. Prior evidence indicates that business owners increase their reported taxable income after an increase in TRI accessibility (Bø et al. 2015) and that tax return disclosure can result in manipulation of tax disclosures (Hasegawa et al. 2013;Hoopes et al. 2018;Allen and Uysal 2022). ...
I examine whether tax return information is useful to equity investors. I do so indirectly, by exploiting unique features of the syndicated loan market, as evidence shows that lenders obtain tax returns from borrowers and that lenders’ private information is transmitted to equity markets when institutional investors are part of a loan syndicate. I find significant increases in tax expense valuation and decreases in tax-related market anomalies following the issuance of institutional syndicated loans, suggesting that equity investors find information about firm performance in tax returns that is useful for their trading decisions. I also find evidence suggesting that institutional investors may determine their loan syndicate participation in part based on the value of tax return information. This study extends prior research and informs policy debates over public disclosure of corporate tax return information by providing evidence to support that tax returns can be useful to investor decision making.
... In addition, some studies have argued that because some forms of the tax disclosure may contain data from income tax returns of companies, it is possible that companies might distort data in their returns as well as in the forms of disclosure to protect the confidential data against their competitors (Mazerov, 2007). In addition, taxpayers are also capable of manipulating taxable income to avoid the disclosure, thus falsifying their taxable income in order to reduce it under the disclosure threshold (Hasegawa, Hoopes, Ishida, & Slemrod, 2013). ...
... As discussed above, several studies have confirmed the interaction between tax planning and earnings management (Haw, Hu, Hwang, & Wu, 2004;Desai & Dharmapala, 2009;Hemmelgarn & Teichmann, 2014;Watrin, et al., 2014;Blaylock, et al., 2015;Ji, 2016;Li, et al., 2016) and tax disclosure with earnings managements (Hasegawa et al., 2013;Cazier et al. 2015). According to Alabbadi (2014), the underlying reasons for earnings management are a high-income tax rate and companies' management of earnings to reduce the amount of taxable income. ...
This study analyses the relevance of tax consideration in earnings management (EM) by proposing a framework that integrates tax planning and tax disclosure aspects, in real earnings management (REM) model. Tax planning plays a core part in EM, whereby both tax planning and EM attempt to minimize the tax expenses. The quality of tax disclosure mitigates the agency problem, thus reducing the EM. In line with the political cost hypothesis, prior studies concluded that companies with a high tax burden tended to manage earnings; therefore, a positive relationship between tax planning and REM exists. However, increasing the transparency in the tax disclosure would likely mitigate the problem of information asymmetry, and thus, according to the Agency Theory, there is an inverse relationship between the REM and tax disclosure. It is hoped that tax consideration would add to EM literature and enhance a better understanding of EM in the real world.
... Firstly, our study is one of the first to consider the transparency of tax disclosures in corporate reports. While prior studies have evaluated the mandatory IFRSrelated tax reporting and disclosures, the public disclosure of corporate tax return information, or the transparency of tax-related information between the revenue authorities of different countries (Lenter et al., 2003;Graham et al., 2012;Hasegawa et al., 2013;Anish and Rejie, 2015), we are the first to consider the transparency of voluntary tax disclosures in firms' corporate reports. ...
... Although the authorities advocating increased tax transparency disclosure aspires a reduction in tax avoidance, the limited literature on the effect of public disclosure on tax compliance provides mixed evidence (Slemrod and Gillitzer, 2014). These studies focus on either the public disclosure of corporate tax return information (Lenter et al., 2003;Hasegawa et al., 2013) or the transparency of tax-related information between the revenue authorities of different countries (Anish and Rejie, 2015). ...
The purpose of our study was to link two global corporate developments, namely integrated thinking and the transparency of tax disclosures. The International Integrated Reporting Council's long-term vision is for integrated thinking to be embedded in mainstream business practice, facilitated by integrated reporting. The development of the transparency of tax disclosures was driven by tax avoidance practices of multinational companies. The vision of embedding integrated thinking into mainstream business and the increased focus on the transparency of tax disclosures have developed independently, but thus far there has been no serious consideration of how they may be related. We argue that there is a natural relationship between these two developments. We use PwC's (2014) framework for measuring the transparency of tax disclosures and apply the framework to the corporate reports of a sample of 45 large firms. We use regression analysis to test the association between the transparency of tax disclosures in corporate reports and integrated thinking and find them to be positively associated.
... For instance, transparency in wealth can enable tax administrations to more easily prosecute evaders whose declared income does not align with their lifestyle. Literature on the effects of transparency on tax compliance suggests that reducing wealth secrecy encourages both individuals and firms to report their income more accurately to avoid punishmentwhether social or financial (see, e.g., Bø et al., 2015;Coricelli et al., 2014;Hasegawa et al., 2013). In their metaanalysis, Suchon and Théroude (2022) noted that wealth disclosure or transparency was not considered in most of the experiments constituting their dataset. ...
Across two studies, we examine the role of transparency and peer punishment in promoting cooperation and addressing economic inequality in public good contributions. With global inequality rising and the wealthiest few amassing a greater share of resources, its impact on social cohesion and business environments is increasingly significant. Financial secrecy further compounds these issues by allowing for income and wealth concealment at both societal and organizational levels. Our experimental findings reveal that transparency paired with peer punishment significantly boosts cooperation, particularly among advantaged individuals. In contrast, peer punishment alone proves insufficient to mitigate the adverse effects of inequality without the support of transparency. These results underscore the need for ethical governance structures that incorporate transparency, fairness, and accountability—principles essential for organizations committed to fostering trust and social responsibility in unequal settings.
... al., 2010;Hasegawa et al., 2013;Casagrande et al., 2015;Lefebvre et al., 2015;Perez-Truglia and Troiano, 2018; Alm, Bernasconi, Laury, Lee, and Wallace, 2017). ...
In this chapter, we assess the use of laboratory experiments in tax compliance research. We first discuss the reasons for using laboratory experiments, and we then describe the basic design of most experiments, including their main limitations. We also summarize some of the main results of these studies, and we discuss how the insights obtained from experimental research can help shape better tax policies. We conclude with some suggestions on new areas of research on tax compliance in which laboratory experiments may be usefully applied in the future.
... Public disclosure Should CbCR Go Public? A Developing Country's Perspective of Public CbCR Afida, C. N. could also result in the loss of proprietary information for firms (Hasegawa et al, 2012). ...
Profit shifting is more significant for developing countries since their tax revenue relies heavily on corporate income tax. The introduction of CbCR of the OECD/G20 BEPS Project is perceived to enhance transparency for tax administration, expected to help developing countries overcome this problem. However, using CbCR and its information is subject to various conditions and constraints. Calling for the implementation of public CbCR has been persistent further by non-government organizations (NGOs). Public disclosure is hoped to increase transparency and keep aggressive tax planning behind. Several initiatives have applied public disclosure of CbCR. This paper aims to review the current regime of CbCR in Indonesia. It then studies the existing implementation of public CbCR in the European Union as examples of public CbCR in practice. Further, this study discusses the potential benefits, challenges, and risks of public disclosure of the CbCR from the perspectives of developing countries.
... First, an increased transparency may achieve policymakers' intended effects i.e. reducing tax avoidance. Second, taxpayers may tend to avoid disclosures, for example by manipulating taxable income to avoid disclosure thresholds (Hasegawa et al., 2013). Third, taxpayers may save taxes through channels unaffected by the mandated tax transparency. ...
Research Question: Does public country by country reporting (CbCr) deter multinationals' tax avoidance practices operating in extractive industries?
Motivation: Public CbCr has already been implemented for two specific sectors, namely the financial and extractive sectors. Prior studies have focused on tax avoidance of EU banks around the implementation of public CbCr requirement (Joshi et al., 2020; Eberhartinger et al., 2020; Overesch & Wolff, 2021). However, studies on how resource-extracting multinationals respond to the CbCr regulation are scarce. This study seeks to fill this gap by examining the effect of public CbCr on tax avoidance with a special focus on extractive industries.
Idea: To improve fiscal transparency, Canadian and European legislators have adopted regulations requiring multinational corporations (MNCs) to provide, annually, their Extraction Payment Disclosures (EPD) (Public CbCr standard for extractive industries) to governments (EC, 2013; Natural Resource Canada, 2014). This study examines the effect of mandatory EPD adoption on the extent of tax haven use.
Data: For a 10-year period surrounding the mandatory EPD adoption (2010-2019), we selected a sample of UK MNCs operating in the oil, gas, and mining sectors and listed on the London Stock Exchange. The analysis is mainly based on firm-level information taken from DATASTREAM database. Based on hand-collected data from annual reports, we measured the extent of tax haven use using the percentage of multinational subsidiaries located in tax haven jurisdictions/countries as listed in Dyreng and Lindsey (2009). An alternative list identified by the Organization for Economic Co-operation and Development (OECD) (2006) was also used in a robustness test.
Tools: To examine our research question, we estimated a linear regression model with panel data using STATA software.
Findings: The results show that the increased transparency resulting from public EPD does not appear to significantly affect the intensity of tax haven use.
Contribution: This study extends and complements prior literature examining the effect of CbCr on tax avoidance and profit shifting by focusing on a specific setting i.e. extractive sector. To the best of our knowledge, apart from Johannesen and Larsen (2016) and Rauter (2020), no studies have provided empirical evidence on how resource-extracting multinationals respond to the EPD regulation.
... Pengungkapan informasi pajak penghasilan kepada publik adalah salah satu alat kebijakan sistem perpajakan. Informasi yang diungkapkan tentang pajak perusahaan menerima perhatian tambahan pada tahun 2003 (Hasegawa et al., 2013). Pengungkapan informasi pajak perusahaan dapat mencegah terjadinya tindakan agresif perencanaan pajak (tax planning), serta meningkatkan kepatuhan pajak perusahaan atau mendorong perusahaan untuk mengurangi atau tidak melakukan tindakan perencanaan pajak secara agresif (Kornhauser, 2005). ...
The purpose of this research is to verify and analyze the effect of financial derivative and tax avoidance on tax disclosure. Population in this research is manufacturing firms listed on Bursa Efek Indonesia (BEI) period of 2010-2019. By using purposive sampling method, 220 sample of 22 firms are meet the criteria of the sample. This study use secondary data which were processed using IBM SPSS Statstics 23 and SmartPLS 3 softwares. The result of this research show that financial derivative and tax avoidance have a negative effect on tax disclosure.
... First, we contribute to the literature on income transparency by studying, for the first time, its effect on political attitudes. Previous studies have shown that the release of income information can affect individuals' job satisfaction (Card et al., 2012), job retention (Mas, 2017), job performance (Blanes-i Vidal and Nossol, 2011;Cullen and Perez-Truglia, 2018), salary negotiations (Baker et al., 2019), and tax compliance (Bø et al., 2015;Hasegawa et al., 2012). Most closely related to our paper is a recent study by Perez-Truglia (2020), who finds that income transparency in Norway widened the gap in self-reported happiness between the rich and poor by 29% and increased the life satisfaction gap by 21%. ...
Political science has long sought to understand how citizens form their political identities, values and behaviours. However, robust causal evidence on how policy interventions can shape the political socialisation process remains limited. The three papers that make up this thesis investigate how citizens - and young citizens in particular - change their political attitudes and behaviours in response to large-scale policy interventions, specifically: income transparency, enfranchisement and compulsory voting. In the first paper, I take advantage of a quasi-experiment in Finland to study whether income transparency - the public release of citizens’ income information - affects support for redistribution. Using survey data and a before-and-after research design, I show that income transparency leaves public support for redistribution largely unchanged, but that young people increase their support for redistribution in response to the intervention. This suggests that redistributive preferences are rooted in more stable, underlying ideologies, that are difficult to alter once they are formed in early adulthood. In the second paper, I leverage a quasi-experiment in Germany to study whether enfranchisement improves citizens’ political maturity. Using survey data and a difference-indifferences approach, I show that enfranchising 16-year-olds can equalise prior differences in political maturity between underage and adult youth. This suggests that political maturity should be understood not just as a precondition, but also as an outcome of the right to vote. In the third paper, I take advantage of a quasi-experiment in Brazil to investigate whether compulsory voting instils voting habits in young people. Using administrative data and a regression discontinuity design, I show that voting fails to be habit-forming when it is compulsory. This finding clarifies the scope conditions of prior research on voting habits, as it runs counter to available evidence from voluntary voting systems.
... 13, n.º 2, págs. 226-247; Hasegawa, M., Hoopes J. L., Ishida, R., ySlemrod, J. (2013): "The effect of public disclosure on reported taxable income: Evidence from individuals and corporations in Japan". NationalTaxJournal, vol. ...
SUMARIO: 1. INTRODUCCIÓN 2. LAS TEORÍAS DE LA PSICOLOGÍA CONDUCTUAL APLICADAS AL ÁMBITO TRIBUTARIO 2.1. Las teorías de la dependencia del contexto y la utilidad no esperada 2.2. La teoría de la interacción social 3. EVIDENCIA EMPÍRICA RESULTADO DE LA REALIZACIÓN DE ESTUDIOS DE LABORATORIO Y DE CAMPO 4. CONCLUSIONES Y PROPUESTAS
... Exploiting a unique feature of the Norwegian program, Bø, Slemrod and Thoresen (2015) estimate that it caused at least 3 percent increase in income reported by the self-employed. Unsurprisingly, the effect we find is stronger given that the baseline noncompliance in our setting is expected to be larger (see Hasegawa et al., 2012 andHoopes, Robinson andSlemrod, 2018 for analyses of the Japanese and Australian programs). ...
This dissertation analyzes key challenges to maximizing the impact of development policies. It focuses on three sectors - migration, taxation, and education. Each of these sectors offers massive development potential but is constrained by some combination of information asymmetry, policy barriers, and limited resources. I study these challenges in a global context with projects in the UAE, Philippines, Pakistan, and the US. I use several context and question-specific research designs: conducting randomized controlled trials, analyzing natural experiments, and evaluating policy interventions. I combine survey and administrative data, with novel identification strategies and statistical techniques to estimate causal effects. The first chapter studies spousal communication among transnational households - households where one spouse temporarily migrates for work. Despite regular communication between spouses, information asymmetry persists in these households. I analyze if this information asymmetry is caused by spouses strategically misreporting information to influence resource allocation in the household. Misreporting, by definition, involves purposefully falsifying information, making it challenging to identify. I address this challenge using a novel field experiment among Filipino migrants in the UAE and their spouses staying behind in the Philippines. I find that both migrants and their spouses staying behind have biased beliefs about each other's finances and these biases are the result of strategic misreporting. Spouses staying behind and some subgroups of migrants underreport their income to influence the remittance decision in their favor. The results show that addressing information asymmetry requires interventions that increase the ability of spouses to verify and monitor each other's reported information. However, the welfare impacts of such interventions are a priori ambiguous because better information sharing may reduce remittances. The second chapter, co-authored with Joel Slemrod and Mazhar Waseem, evaluates two Pakistani programs to study the impact of public disclosure and social recognition of tax payments on tax compliance. Pakistan began revealing the income tax paid by every taxpayer in the country from 2012. Simultaneously, another program began recognizing and rewarding the top 100 tax-paying corporations, partnerships, self-employed individuals, and wage-earners. We combine publicly disclosed and restricted administrative tax return data for the universe of tax filers to create an extended panel of tax records from 2006 to 2015. Using empirical strategies based on name commonness for the public disclosure program and cutoffs in the social recognition program's eligibility criteria, we show that both programs induced strong compliance responses. Our results suggest that such programs can be important policy levers to mobilize resources, especially in weak-enforcement-capacity economies. The third chapter studies the joint educational attainment and migration decisions of international students choosing to study in the US. Immigration critics argue that international students are primarily come to the US for employment and use their student status to bypass restrictions on employment-based migration. I use exchange rate variations to analyze these competing educational and employment incentives for potential international students. A depreciation of the home currency reduces educational incentives by increasing the relative cost of US education but increases employment incentives by making US income relatively more valuable. I find that the cost of education effect dominates the higher relative income effect. A depreciation of the home currency reduces the stock and flow of international students from that country.
... Exploiting a unique feature of the Norwegian program, Bø et al. (2015) estimate that it caused at least 3 percent increase in income reported by the self-employed. Unsurprisingly, the effect we find is stronger given that the baseline noncompliance in our setting is expected to be larger (see Hasegawa et al., 2012 andHoopes et al., 2018 5 00929 20 Kettle et al. (2016) in Guatemala (please see Slemrod et al., 2001, Fellner et al., 2013, and Dwenger et al., 2016 for three similar studies from developed countries). Relative to these studies, we provide evidence on the impacts of two national programs that appeal, among other things, to social motivations of taxpayers. ...
We examine two Pakistani programs to see if the public disclosure of tax information and social recognition of top taxpayers promote tax compliance. Pakistan began revealing income tax paid by all taxpayers from 2012. Simultaneously, another program began recognizing and rewarding the top 100 tax paying corporations, partnerships, self-employed individuals, and wage-earners. We find that the public disclosure caused a 9 log-points and the social recognition program a 17 log-points increase in the tax payments of agents exposed to the program. Our results suggest that such programs can be important policy levers to mobilize additional resources.
... 30 Of some note, there is now much evidence that non-financial penalties (e.g. public disclosure) may also act as a deterrent (Bosco and Mittone, 1997;Fortin et al., 2007;Coricelli et al., 2010;Hasegawa et al., 2013;Bø et al., 2015;Casagrande et al., 2015;Lefebvre et al., 2015;Perez-Truglia and Troiano, 2015;Battiston and Gamba, 2016;Alm et al., 2017a). ...
In this paper, I review and assess what we have learned about what motivates individuals to pay – or to not pay – their legally due tax liabilities. I focus on three specific questions. First, what does theory say about what motivates tax compliance? Second, what does the evidence show? Third, how can government use these insights to improve compliance? I conclude with some suggestions – and some predictions – for future research.
... Public disclosure of income tax information is one of a tax system policy tool. Disclosed information about a company's tax received more attention in 2003 (Hasegawa et al., 2013). Sweden, Norway and Finland presently have a policy requiring the public disclosure of taxable incomes. ...
Purpose
This paper aims to examine the impact of corporate governance internal mechanisms on tax disclosure in non-financial firms in Malaysia. Managerial ownership and incentive compensation are used as proxies to reflect corporate governance conduct.
Design/methodology/approach
This study uses panel data set to analyse 286 non-financial listed companies on Bursa Malaysia for the years 2010-2012. Tax disclosure was gathered from the financial statements, particularly in the consolidated of tax expenses. Tax disclosure was measured using modified effective tax rate reconciling items. Multivariate statistical analyses were run on the sample data.
Findings
This study finds that managerial ownership and incentive compensation do not significantly influence tax disclosure. On the other hand, it is found that there are significant positive associations between each of firm size and industry dummy, and tax disclosure. This means that company-specific characteristics are important factors affecting corporate tax disclosure.
Research limitations/implications
This study extends the work of previous studies by suggesting that the signalling theory and the agency theory are the main theories concerned with tax disclosure and corporate governance. The authors add an additional appreciation of the contribution of corporate governance from the interested parties’ tax disclosure evaluation in the Malaysian environment.
Practical implications
The evidence found by this study has important policy and practical knowledge implications for the authorities, researchers, decisionmakers and firm managers. The findings provide them with some relevant insights on the importance of corporate governance practices from the companies’ perspectives and contribute to the discussion of who verifies and deduces from tax disclosure directed by companies.
Originality/value
To the best of the authors’ knowledge, this study is the first attempt to examine the influence of the corporate governance internal mechanisms on tax disclosure in a developing nation like Malaysia. Although this paper focuses on a single country, it contributes significantly to the debate about tax disclosure in relation to “comply or explain”, as suggested in the Code of Corporate Governance. This study shows that companies are trying to avoid as far as possible disclosing tax-related information.
Keywords:
Corporate governance, Incentive compensation, Managerial ownership, Tax disclosure
... They found on average a slight increase in reported business income after 2002 in communities that previously had limited disclosure. Also, Hasegawa et al. (2013) analyzed disclosure of individual and corporate tax information in Japan, and found that the existence of a "disclosure threshold" encouraged some underreporting of income. Perez-Truglia and Troiano (2015) conducted a field experiment to study the effect of increasing the publicity of online lists with names, tax debts, and other information of tax delinquents maintained in three U.S. states (Kansas, Kentucky, and Wisconsin). ...
... However, the deterrent effects of public disclosure are somewhat mixed. Hasegawa et al. [2012] examined the impact of public disclosure in Japan, and found little evidence that disclosure encouraged compliance. In fact, the Japanese system included a threshold for public disclosure, and large numbers of individual and corporate taxpayers whose tax liability would otherwise have been close to the threshold actually underreported income in order to avoid disclosure. ...
Environmental monitoring and enforcement are controversial and incompletely understood. This survey reviews what we do and do not know about the overall effectiveness, as well as the cost effectiveness, of pollution monitoring and enforcement. We ask five key questions: what do environmental monitoring and enforcement actions look like in the real world? How do we assess environmental compliance and deterrence? Do environmental monitoring and enforcement actions get results? How, why, and when do inspections and sanctions achieve compliance and reduce pollution? And, what do the answers to the preceding questions tell us about designing and implementing more effective and more cost effective public policies for the environment? A key contribution is drawing lessons from diverse sources, including insights from theoretical, empirical, and experimental contributions in environmental, tax, and safety settings. We conclude that traditional environmental monitoring and enforcement actions generate important deterrence effects. However, there are limits to such deterrence, and deterrence itself cannot fully explain all patterns of environmental behavior. Encouraging compliance requires both traditional tools and additional tools.
... In 2006, the accounting norms represented by Financial Accounting Standards Board (FASB) Financial Interpretation No. 48, Accounting for Uncertainty in Income Taxes (FIN 48) standardized financial reporting of tax uncertainty providing measurement of income tax reserves in financial statements and it made mandatory its public disclosure. 1 In 2012 the President Obama's Framework for Business Tax Reform called for an increase in disclosure of annual corporate income tax: "Corporate tax reform should increase transparency and reduce the gap between book income, reported to shareholders, and taxable income reported to IRS. These reforms could include greater disclosure of annual corporate income tax payments." 2 As Hasegawa et al. (2013) point out this debate took place in the complete absence of empirical evidence of taxpayers responses to income tax disclosure. And, in the absence of any theoretical framework that could show the effects of the public disclosure of the corporate tax report. ...
In this paper, we analyze the effects of disclosing corporate tax reports on the performance of financial markets and the use of prices by the tax enforcement agency in order to infer the true corporate cash flows. We model the interaction between a firm and the tax auditing agency, and highlight the role played by the tax report as a public signal used by the market dealer and the role of prices as a signal used by the tax authority. We discuss the determinants of both the reporting strategy of the firm and the auditing policy of the tax authority. Our model suggests that, despite disclosure of the tax reports being beneficial for market performance (as the spreads and trading costs are smaller than under no disclosure), the tax agency might have incentives to not disclose the tax report when its objective is to maximize expected net tax collection.
... x compliance because egregiously low income declarations might elicit private information that contradicts a noncompliant taxpayer's claim; thus, it is a way for the tax authority to collect relevant information. The small empirical literature on the effects of public disclosure has so far provided mixed evidence about its effect on tax compliance. Hasegawa et al. (2013) examine the Japanese disclosure system, which ended in tax year 2004, and required disclosure of corporate and individual taxable income only over a threshold amount. They find evidence that many corporations and individuals manipulated their reported income to be below the disclosure threshold, but do not find evidence supporting an ov ...
The tax-systems perspective considers a variety of costs and behavioral margins often ignored in standard tax analysis: administrative and compliance costs, evasion and avoidance behavior, and multiple non-rate tax-system instruments (e.g., withholding and public disclosure). We show how the standard optimal tax framework can be augmented to include these new sources of cost and behavioral response by considering some enduring tax policy questions: What is the optimal commodity tax base breadth? How does enforcement effort targeted to avoidance behavior affect optimal progressivity? What fraction of returns should be audited? Should small firms be excluded from a tax system?
In a field experiment where revelation of co-worker earnings and the shape of the earnings distribution are exogenously controlled, I test whether relative earnings information itself influences effective labor supply and labor supply elasticity. Piece-rate workers shown their peer earnings standing provide significantly more labor effort. However, the productivity boost from earnings disclosure disappears when inequalities in the underlying piece rate exist. By cross-randomizing net of tax piece rates, labor supply elasticity with respect to the net of tax wage is also estimated. Unlike labor level, I find this labor elasticity is unchanged by the relative standing information. Taken together, these findings have direct implications for how to best model relative status concerns in utility functions, supporting some and precluding other common ways. More speculatively, they also suggest social comparisons could be strategically used to grow firm output or the tax base, and, that underlying inequalities in compensation schemes inhibit the ability of social comparisons to incentivize work.
One of the factors that determine the occurrence of tax avoidance is financial derivatives. That is because the tax regulations in Indonesia on derivative transactions are still very weak and often debated. The lack of clarity of tax regulations on derivative transactions can also be used by companies to conduct tax avoidance. This can certainly harm state revenues, especially revenues from the tax sector. Disclosure of corporate tax information encourages increased tax compliance. Therefore, the level of corporate tax disclosure is associated with tax avoidance. This study aims to test and analyze the effect of financial derivatives and tax avoidance on tax disclosure. The population in this study are manufacturing companies listed on the Indonesia Stock Exchange (IDX) in 2022. By using purposive sampling method, obtained from several samples of companies that meet the criteria. This study uses secondary data which is then processed using the SmartPLS 4.0 program.
This paper uses differences‐in‐differences to analyse the effectiveness of messages sent by the Spanish Tax Agency to deter tax evasion by owners of vacation rentals. The results suggest that these messages were effective in the aggregate, as there was an increase both in the declared amount of such income (6 to 8.5%, depending on the line item under which it is declared) and in the number of filers (29.7‐64.2%), and this effectiveness became more marked over time. Notably, there was more response to the intervention from the self‐employed. However, in some collectives the intervention produced the opposite of the intended effect. This article is protected by copyright. All rights reserved
In this paper, we present an agent‐based model in which taxpayers ‘live’ in a network and care about their social reputation. Individuals decide whether to pay or to evade taxes considering the expected economic net benefit and the reputational cost from tax evasion. Individuals differ in income and in the weight they attach to social reputation, which is updated by assessing the opinions shared in their reference group. The reference group contains individuals irrespective of their income (integrated society) or it is made up of peers belonging to the same income group (segregated society). We simulate the model in the two alternative settings to find the frequency distribution of taxpayers in a dataset of random networks. The results indicate that, in an integrated society, network conformity is reached and all individuals either evade or pay their taxes. Conversely, a segregated society might generate obstacles to the diffusion of opinions and, as a result, tax evasion and tax compliance might coexist. Lastly, we consider the effects of a social media campaign starring a celebrity financed by a fiscal authority to increase overall tax compliance by exploiting the diffusion dynamics in the network. We show that such a policy is more effective if the diffusion of opinions is not hindered by social segregation. In an integrated society, especially if income inequality is low, a celebrity's endorsement of tax compliance might nudge widespread socially responsible tax behaviour.
In order to deter aggressive tax planning, the Australian government mandated public disclosure of three line items from large corporations' tax returns. However, there is no evidence that the mandated disclosure led public firms to pay more taxes (Hoopes, Robinson, and Slemrod 2018). Instead, I find that firms strategically offset expected reputational costs by voluntarily issuing supplemental information. Specifically, when managers expect new reputational costs from the mandated tax return disclosure (wherein the disclosure reveals an unexpectedly low tax liability) and low proprietary costs from a supplemental voluntary disclosure (wherein the firm discloses its nonaggressive tax planning), firms are likely to voluntarily disclose information that both preempts and supplements the government's mandatory disclosure. Thus, when mandatory disclosures are incomplete, firms will voluntarily issue additional information to remain in control of their disclosure environments.
In this study, we examine the effect of increased tax transparency on the tax planning behavior of European banks. In 2014, the European Union introduced public country‐by‐country reporting requirements to the banking industry. Treating this new requirement as an exogenous shock, we find limited evidence consistent with a decline in income‐shifting by the banks’ financial affiliates in the post‐adoption period (starting from 2015). We do not, however, find robust evidence of a significant change in the consolidated book effective tax rates among the affected banks. Our findings suggest that increased transparency from public country‐by‐country reporting can deter tax‐motivated income shifting but that it did not appear to materially influence the banks’ overall tax avoidance. Our findings have policy implications for the ongoing debate between the European Parliament, the Organisation for Economic Co‐operation and Development, and accounting standard‐setting bodies on whether to require multinationals to publish country‐by‐country reports.
This article is protected by copyright. All rights reserved.
To combat tax avoidance by multinational corporations, the Organisation for Economic Co‐operation and Development introduced country‐by‐country reporting, requiring firms to provide tax authorities with a geographic breakdown of their profitability and activities. Treating the introduction of country‐by‐country reporting in the European Union as a shock to private disclosure requirements, this study examines the effect on corporate tax outcomes. Exploiting the €750 million revenue threshold for disclosure and employing regression‐discontinuity and difference‐in‐differences designs, I document a 1–2 percentage point increase in consolidated GAAP effective tax rates among affected firms. I also find evidence consistent with a decline in tax‐motivated income shifting, starting in 2018. These results suggest that, while private geographic disclosures can deter corporate tax avoidance, so far, the regulations have had a limited effect on tax‐motivated income shifting. My findings have policy implications for the global implementation of private country‐by‐country reporting and extend the debate on public versus private disclosure of tax information.
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This paper reports an experimental test of the relative efficiency of a whistleblowing‐based audit scheme compared to a random‐based audit scheme. We design a between‐subjects laboratory experiment with two treatments: a benchmark with a random‐based audit scheme and an alternative treatment in which taxpayers can blow the whistle. Compared to the benchmark, the whistleblowing‐based audit scheme (i) improves the targeting of evaders, (ii) decreases the monetary amount of tax evasion, and (iii) raises the tax levy.
Este estudo analisou se a proxy Book-Tax-Differences (BTD) afeta o retorno das ações das
companhias brasileiras com ações negociadas na BM&FBovespa. Foram coletados dados
anuais no período de 1994 a 2013 e após o tratamento dos dados foram analisadas 136
companhias por 19 períodos anuais utilizando o CAPM e o modelo de Fama e French (1992).
Os resultados encontrados sugerem que no modelo CAPM, a variável BTD foi
estatisticamente significante. Adicionalmente, verificou-se que a relação entre a BTD e
retorno da ação das companhias não foi afetada pela adoção do Regime Tributário de Transição (RTT). Assim, somente com base nas evidências apontadas através do CAPM,
sugere-se que a diferença entre o lucro contábil e lucro tributável apresente conteúdo
informacional relevante a precificações de ações no mercado de capitais brasileiro, mas cabe
ressaltar que as estimativas apontam baixo poder preditivo.
This study examines the tax avoidance behavior of firms prior to the issuance, and following the resolution, of SEC tax comment letters. We find that firms that appear to engage in greater tax avoidance are more likely to receive a tax-related SEC comment letter. We also find that firms receiving a tax-related SEC comment letter, relative to firms receiving a non-tax comment letter, subsequently decrease their tax avoidance behavior consistent with an increase in expected tax costs. Additionally, we document evidence consistent with other firms that do not receive a comment letter reacting to multiple publicly disclosed tax-related comment letters within their industry by lowering their reported GAAP ETR, consistent with an indirect effect of regulatory scrutiny on certain types of tax avoidance.
Tax returns of both public and private corporations are protected from IRS disclosure by Internal Revenue Code §6103. Historically, most arguments against public disclosure of tax information were aimed at personal returns. This article evaluates arguments both opposing and favoring company-specific public disclosure of corporate tax returns, focusing on public companies and federal government contractors. Among reasons against disclosure are the fear that (1) it will add to, rather than reduce, confusion about corporate accounting and tax practices, (2) compliance will be reduced as companies seek to hide details of their revenue and expenses, and (3) proprietary information, including trade secrets, will be disclosed. Among reasons favoring disclosure are the (1) results of a national survey, (2) improvement of tax compliance, (3) limited value of privacy given that it does not cover disagreements with the IRS that wind up in court, (4) fiduciary responsibility corporations owe to the public, and (5) tendency of increased transparency to intensify public pressure for tax reform. Based on this analysis, it is argued that the benefits to be gained by increasing disclosure—especially encouraging tax reform—outweigh the objections raised, which either lack empirical basis or may be met with available remedies.
The current controversy involving possible political targeting by the IRS in administering the exempt organization (EO) tax laws is simply the latest in a long succession of similar allegations spanning at least five decades. This article proposes to address the problem through increased transparency of the IRS’s administrative actions involving EOs. Greater transparency responds directly to the public’s frustration in not being able to monitor the agency and gain confidence that the laws are being applied in an even-handed manner.Proposals to increase the transparency of government commonly confront some claimed governmental interest in secrecy, such as a national security or law enforcement concern. Transparency of the government’s tax decisions, however, encounters the further problem that it violates the privacy rights of taxpayers. This latter clash arises because the government’s tax administration decisions generally turn on the information it has extracted under compulsion from taxpayers. Thus, meaningful transparency of one (the government’s tax decisions) almost necessarily requires meaningful transparency of the other (taxpayer tax return information). Fortunately, Congress has long recognized good policy reasons to make public a substantial amount of EO tax return information. Thus, slight liberalizations of the existing disclosure rules for such information may allow sufficient transparency to satisfy the public’s right to know in the precise area of the law that has generated the most controversy. Opening up more EO tax return information and IRS EO decision-making to public scrutiny would tend to deter IRS misbehavior, reduce suspicions of such misconduct, and promote fuller communication both to establish any impropriety and avert false charges against the agency.
Supporters of public disclosure of personal tax information point to its deterrent effect on tax evasion, but this effect has not been empirically explored. Although Norway has a long tradition of public disclosure of tax filings, it took a new direction in 2001 when anyone with access to the Internet could obtain individual information on income, wealth, and income and wealth taxes paid. We exploit this change in the degree of exposure to identify the effects of public disclosure on income reporting. Identification of the deterrence effects of public disclosure is facilitated by the fact that, prior to the shift to the Internet in 2001, some municipalities had exposure which was close to the Internet type of public disclosure, as tax information was distributed widely through paper catalogues that were locally produced and disseminated. We observe income changes that are consistent with public disclosure deterring tax evasion: an approximately 3 percent average increase in reported income is found among business owners living in areas where the switch to Internet disclosure represented a large change in access.
Public access to federal tax return information has been evaluated and debated since the enactment of the first federal income tax. As a way to fund the Civil War, the Revenue Act of 1862 imposed an income tax on individuals, and provided that members of the public were entitled to examine the names of taxpayers and their liabilities. The initial purpose of this public disclosure was to notify potential taxpayers of the amounts being assessed against them, not to permit the public scrutiny of individual taxpayers. The Revenue Act of 1864 changed that, making all returns open for public inspection and allowing newspapers, in a move that several publishers considered controversial, to publish the income and tax liabilities of all taxpayers. As public opinion turned against the income tax, Congress prohibited the publication of tax returns in 1870 before ending the income tax altogether a year later in part due to privacy concerns.
The 1894 revival of the federal income tax, which applied to both individuals and corporations, was mindful of the privacy concerns that plagued its predecessor and forbade the publication of any tax return. Although this income tax was ultimately found unconstitutional, it is significant to note that the privacy guaranteed to individual taxpayers in the Act extended to corporate filers as well, thanks almost entirely to the residual public support for individual return privacy.
The Payne-Aldrich Tariff Act of 1909, the predecessor to the modern corporate income tax, provided that corporate returns would be publicly disclosed in response to growing national distrust of corporations, an interest in informing investors, and the belief that public disclosure would expose and deter dishonest business practices. The public disclosure of corporate returns was unpopular with small corporations, and they banded together to eliminate the publicity requirement on the grounds that it had a disproportionate effect on smaller corporations and discriminated between corporations and other business types. In 1910, the Commissioner of Internal Revenue ruled that the publicity feature would not be enforced without specific appropriation by Congress for its funding. In response, Congress appropriated funds for public disclosure, with the caveat that the returns would only be made public under rules prescribed by the Secretary of the Treasury. The Secretary in turn provided regulations dictating that returns would be only be available to the shareholders of a corporation who could show cause for inspection and to any member of the public for any corporation that offered their stock for public sale. Returns were only available at the office of the Commissioner and it was prohibited to publish any section of the returns, severely restricting public access. Executive discretion of disclosure would end with the Tax Reform Act of 1976.
The Income Tax Act of 1913 addressed both individual and corporate income taxation, and similar to the Payne-Aldrich Tariff Act, granted the Treasury the power to regulate public access to return information. The Secretary ultimately did not use this authority to allow public access to individual returns, though in 1918 the Commissioner did relent to disclosure advocates and allowed the public to view lists of individual taxpayers who filed returns in a specific district. The publication of this information was prohibited.
The Revenue Act of 1924 required the names of both individual and corporate filers to be disclosed with their tax liabilities, on the basis that disclosure would discourage evasion and end improper business methods. The public availability of this information was opposed by the Secretary of the Treasury Andrew Mellon and President Calvin Coolidge, who argued that publicity would do nothing to raise revenue, actually encourage tax evasion, and serve only as popular fodder for newspapers. The newspaper publications that followed were predictably disparaged by many for the breach of individual privacy, the failure to uncover tax evasion, the questionable use of the information by the public, and the cost of disclosure to the government. In 1926, the law was changed to exclude liabilities from public disclosure, requiring only the taxpayer’s name and address. This remained the rule until 1966.
As a result of a well-publicized income tax evasion scandal and the urging of publicity advocate Senator Robert LaFollette, Jr., Congress revisited the disclosure requirement in 1934, a time during the Great Depression in which popular resentment against the rich was palpable. Rather than publish the full tax return, each taxpayer was required to complete a “pink slip” containing their name and address, gross income, deductions, net income, credits, and tax liability. These pink slips were then made available to the public, and were again justified by the assumption that publicity would deter tax evasion. In opposition to the pink slip requirement, the anti-disclosure group, “Sentinels of the Republic,” led a large taxpayer protest. Congress was moved by the concerns of individual taxpayers, and repealed the pink slip requirement for both individuals and corporations in 1935 before the law could take effect. Once again, corporate disclosure was influenced by popular sentiment against individual disclosure.
The Securities Act of 1933 and the Securities Exchange Act of 1934 created the Securities Exchange Commission, an agency tasked with regulating corporate financial disclosure in the wake of the Great Depression. The SEC mandates extensive disclosure of corporate income tax data, and has never entertained the arguments against income tax publicity. These disclosures, presented on a Form 10-K, must be made available to any shareholder upon request, though all members of the public are able to access this information through the SEC’s electronic data gathering analysis and retrieval system – EDGAR.
In the 1980s, Citizens for Tax Justice revealed, through analyzing financial data disclosed to the SEC, that many of the largest corporations were paying little to no federal income tax. The 1986 Tax Reform Act sought to mitigate loopholes used by corporations, repeal the investment credit, and strengthen the alternative minimum tax. The reforms increased tax revenue, which allowed the government to lower the top corporate income tax rate to 35%, and leveled the playing field for competitors.
At the time of this writing, four states had enacted disclosure laws to help inform their tax policy in the same way the revelations by CJT guided federal tax reform. In Massachusetts, a compromise among the Tax Equity Alliance for Massachusetts, the business community, and the Legislature called for the creation of the Special Commission on Business Tax Policy to study Massachusetts business taxes and the annual disclosure of financial information of publicly traded corporations, banks, and virtually all insurance businesses in the state. In addition to being available to the public, the disclosed information is used to create an aggregate report detailing tax information by business type and size. The disclosure law may be subject to changes down the line, such as the substitution of the business’s name with an anonymous entity identification number to be changed year after year, as proposed by the Special Commission.
West Virginia requires the publication in the State Register of the name and address of any taxpayer receiving a state tax credit with the name and amount of each credit received. Designed to promote accountability and efficiency, the disclosure requirement revealed that the coal industry was the major beneficiary of the state’s investment and jobs expansion credit, a credit that was additionally discovered to cost the state enough tax revenue to effectively eliminate all state tax liabilities for a thirteen year period for most qualifying tax payers. While the disclosure requirement received only token resistance, large companies won a significant victory with the maximum reporting category being designated as “more than 10,000,000.
Arkansas authorizes the disclosure of any taxpayer’s state tax credits, rebates, discounts, or commissions for the collection of a tax. No publication of the disclosed information is required, and members of the public must file a request with the Director of Taxation to view the information. Taxpayers then have up to seven days to challenge the release if they can prove it would give an advantage to competitors.
Wisconsin requires the Department of Revenue, at the request of any Wisconsin resident providing identification and paying a four dollar per return fee, to furnish the amount of income tax paid by any taxpayer. The requesting party’s identification information is then forwarded to the individual or corporation whose tax data was requested. Being the older of the four disclosure states, there is unique proof in Wisconsin of publicity positively influencing proposed tax policies. The Wisconsin Action Committee, for example, used the disclosure requirement to create a list of major corporations doing business in Wisconsin without paying any state income tax. Their discoveries helped twice to fashion a proposed corporate minimum state income tax, though the legislation was ultimately vetoed on both occasions.
As it pertains to publicly traded corporations, the arguments favoring the state level disclosure of disaggregated tax information easily outweigh the arguments opposing disclosure. Firm-specific information allows policymakers to consider a range of issues surrounding corporate tax policies through microsimulations, the creation of statistical aggregates, and the identification of transfer pricing abuse. Disclosure without identification of the taxpayer hinders the policymaking justification for disclosure, as any meaningful analysis requires identification to aid in data comparison and categorization. Finally, disclosure allows the public to access and form an understanding of the issues germane to corporate tax reform, a topic that would otherwise be limited to a small group of experts, and further encourages a climate of accountability and openness consistent with the goals of the SEC.
Opponents to disclosure consistently argue that mandatory disclosure will reveal proprietary information to competitors, though the support behind this argument is dubious. In 1973, the SEC was unsympathetic to arguments that the reporting of more extensive federal income tax data would reveal tax strategies to competitors. Indeed, opponents to disclosure have never been successful in providing a detailed example of how the disclosure of tax information reveals anything of competitive value. Ultimately, the disclosure of tax data is unlikely to give competitors any value because comparable information is typically available from other reports and because information would be presented in tax, rather than financial, accounting in its aggregate form. Even if one were to accept the untenable idea that disclosure would affect competition, the resulting flow of information would be in line with the principles of a market economy.
Finally, opponents to disclosure argue that it would undercut a state’s business climate. Presumably, mandatory disclosure would drive businesses out because of the perceived lack of state goodwill towards businesses. While any tax policy can be characterized as affecting a business climate, it is unlikely that disclosure, a tax policy that has no effect on a corporation’s bottom line, would have a significant impact on a business’s perception of a state’s business climate. If the business climate were truly impacted by disclosure, corporations would respond in unique ways. Some may welcome the opportunity to show that corporations pay their fair share of taxes. It’s unlikely, however, that a business would move from the state as a result of a disclosure requirement, especially if such requirements became widespread.
Individuals have a higher expectation of privacy, and as such this article suggests that a state’s disclosure requirement be limited to foreign or domestic publicly traded corporations, banks, utilities, and insurance companies doing business in the state. However, with respect to the public’s right to know who is receiving state funds, this limitation should not be applied to the disclosure of tax expenditures. Situations in which the state spends money through tax provisions should be disclosed regardless of whether the beneficiary is an individual or a business. Tax expenditure disclosures should at a minimum include the amount of the special tax provision and the beneficiaries’ savings resulting from the beneficial treatment, and supplemental information that allows the state to evaluate the efficacy of the tax expenditure would be prudent depending on the tax policy’s purpose. As it pertains to disclosure under normative state tax provisions, states should require disclosure of financial and tax accounting income to identify where and how the tax code can be brought closer to economic realities.
Internal Revenue Code guarantees privacy of taxpayer information in the administration of the U.S. income tax. Many state and local governments also support the confi dentiality of taxpayer data. However, given the growth in on–line tax fi ling and reports of breaches in confi dentiality of credit and banking data, individuals are likely to be increasingly wary of the privacy of their tax return data. Might we expect, as taxpayers question the confi dentiality of their information, that their tax compliance would be affected? In this paper, we use experimental methods to analyze the relationship between the perception of confi dentiality and taxpayer compliance. We fi nd some evidence suggesting that when individuals perceive a breach in confi dentiality, they actually increase their level of compliance.
This paper offers an overview of the issues raised by disclosure of corporate tax return information by providing current and historical perspectives from the fields of accounting, economics, and law. It reaches a number of conclusions. First, we are concerned that disclosure of the entire corporate tax return could cause companies to dilute the information content of these returns, hampering tax enforcement, and might, even in diluted form, reveal proprietary information that could provide a competitive advantage to those companies that are not required to make such a disclosure. For this reason we do not support full disclosure. The case for considering limited public disclosure of corporate tax return information - revealing a small number of bottom-line items or an expanded reconciliation between tax and book concepts of income - rests on the fact that it would contribute to the transparency of the tax system by clarifying the tax payments of corporations in and of themselves, relative to other corporations, and relative to the income they report on their financial statements. The greater transparency could have several beneficial effects. First, it could put pressure on legislators to improve the tax system. Second, it could induce corporations to resist aggressive tax reduction strategies if they fear that disclosure of their low tax payments would trigger a negative consumer response; whether it would provoke negative investor response is less clear, as more transparency could conceivably induce a race to the bottom of low tax liability. Finally, it could contribute to better functioning of financial markets if it sheds new light on the information presented in financial statements. We find the case for limited disclosure to be compelling enough that we look forward to the next step of considering the best form of disclosure and the details of its implementation.
We investigate empirically the determinants of the quality of governments in a large cross-section of countries. We assess government performance using measures of government intervention, public sector efficiency, public good provision, size of government, and political freedom. We find that countries that are poor, close to the equator, ethnolinguistically heterogeneous, use French or socialist laws, or have high proportions of Catholics of Muslims exhibit inferior government performance. We also find that the larger governments tend to be the better performing ones. The importance of (reasonably) exogenous historical factors in explaining the variation in government performance across countries sheds light on the economic, political, and cultural theories of institutions.
In this paper I review and describe the income tax disclosures currently required in firms' financial statements. l discuss many of the problems with trying to estimate a firm's actual tax liabilities and taxable income from the income tax expense and disclosures to the financial statements. In doing so, I reveal the conditions under which taxable income may most accurately be estimated from financial statements as well as those conditions which make this task difficult, if not impossible.
Congressional debate over a surtax on millionaires, spurred in part by popular reaction to the unparalleled surge of millionaires and their income during the 1980s, has revived public discussion of the economic and moral underpinnings of progressive income taxation, which was submerged in the self-congratulatory atmosphere surrounding the compression of marginal tax rates during the Reagan administration.The Article contributes to that discussion by examining whether current law frustrates formulation of public policy by blocking access to information needed to explore the ability of the rich to pay higher taxes without rendering society’s poorest members even poorer. First, the Article presents the available aggregate data concerning the recent proliferation of income-millionaires. Next, it sets forth the remarkable, yet little-known, history of the alternating openness and secrecy of individual income tax returns. The Article then scrutinizes the reasons commonly advanced to vindicate privacy interests. And, finally, it offers a concrete proposal favoring publicity of millionaires' tax returns combined with an explanation of how the specific information disclosed will inform a comprehensive debate about income distribution and redistribution.
This paper offers some exploratory analysis of an extraordinarily rich data set of audit and appeals records, matched with tax returns and financial statements, of several thousand corporations. We find that corporate tax noncompliance, at least as measured by deficiencies proposed upon examination, amounts to approximately 13 percent of "true" tax liability. Second, noncompliance is a progressive phenomenon, meaning that noncompliance as a fraction of a scale measure increases with the size of the company. Other things equal, noncompliance is related to two measures of the presence of intangibles and with being a private company. We find some evidence that incentivized executive compensation schemes are associated with more tax noncompliance, but only with respect to bonuses and not for stock options and other equity-related incentive pay. We uncover no relation between a commonly-studied measure of the quality of corporate governance and the extent of proposed (scaled) tax deficiency. Finally, we find that there is no consistent simple or partial negative association between our measure of tax noncompliance and measures of the effective tax rate calculated from financial statements. These conclusions are preliminary because our central measure of tax noncompliance is the result of an imperfect and perhaps systematically detailed audit of a tax return declaration that may itself be the opening bid in what is expected, often correctly, to be an intense negotiation and formal appeals process. Second, the causal links among tax aggressiveness, executive compensation, and corporate governance are potentially complex, and the analysis presented here at best establishes statistical associations, but certainly does not establish causal relations.
The debate over whether tax privacy - a set of statutory rules that prohibits the federal government from publicly releasing any taxpayer’s tax return - promotes individual tax compliance is as old as the income tax itself. It dates back to the Civil War and resurfaces often, especially when the government seeks innovative ways to collect tax revenue more effectively. For over 150 years, the tax privacy debate has followed predictable patterns. Both sides have fixated on the question of how a taxpayer would comply with the tax system if he knew other taxpayers could see his personal tax return. Neither side, however, has addressed the converse question: how would seeing other taxpayers’ returns affect whether a taxpayer complies? This Article probes that unexplored question and, in doing so, offers a new defense of individual tax privacy: that tax privacy enables the government to influence individuals’ perceptions of its tax enforcement capabilities by publicizing specific examples of its tax enforcement strengths without exposing specific examples of its tax enforcement weaknesses. Because salient examples may implicate well-known cognitive biases, this “strategic publicity function” of tax privacy can cause individuals to develop an inflated perception of the government’s ability to detect tax offenses, punish their perpetrators, and compel all but a few outliers to comply. Without the curtain of tax privacy, by contrast, individuals could see specific examples of the government’s tax enforcement weaknesses that would contradict this perception. After considering this new defense of individual tax privacy in the context of deterrence and reciprocity models of taxpayer behavior, I argue that the strategic publicity function of tax privacy likely encourages individuals to report their taxes properly and that it should be exploited to enhance voluntary compliance.
Publicity of information is a fundamental principle of American democracy. Not only is it instrumental in increasing compliance with the laws, a necessity of any government, but also it is an essential element of the right to know-which itself is an aspect of the first amendment right to free speech. Unfortunately, publicity often conflicts with another fundamental right-the right to privacy. In regards to taxes, citizens essentially have two rights to know: a right to know what the tax laws are, and a right to know that these laws are being administered fairly. Publicity in the tax context traditionally means making tax return information public records in an attempt to ensure the fair administration of the tax laws. This type of publicity, however, generates intense hostility because taxpayers perceive it as a huge invasion of their privacy.
After examining the pros and cons of traditional publicity of tax information, this Essay suggests that tax publicity be reconceived more broadly. Redefined in the dictionary sense of simply the transmission of information, tax publicity can include a wide array of communications, varying as to content and audience, which can better achieve publicity’s underlying goals with minimal invasions of privacy. A large portion of publicity in this broad sense can be-and should be-educational.
The Essay outlines four publicity proposals to stimulate discussion. Three use the expanded definition of publicity and focus on individual taxpayers: an annual tax statement, a short booklet to accompany the 1040, called Know Your Taxes, and an annual W-4. These essentially educational programs should deliver tax information to taxpayers more effectively than currently occurs. The fourth, more controversial, proposal suggests partial publicity-in the traditional sense. It attempts, however, to minimize the customary objections to publicizing tax return information by reducing invasions of privacy.
All the proposals will cost money, but probably less than the costs of enforcing compliance only through increased audits and litigation. They may also have psychic and political costs. Although recent studies show that more informed taxpayers are often more compliant, some of the information may trigger negative attitudes which would decrease compliance and/or create pressure for lower taxes.
Regardless of whether taxpayer reactions to the increased information are positive or negative, the greater publicity proposed in the Essay could have salutary effects, especially if it occurred in the context of a rational debate by elected officials about tax policy (instead of the current inflammatory rhetorical sound bites). On the one hand, if taxpayers respond positively to publicity, compliance will increase. If they act negatively, and their hostility to taxes increase, at least the publicity will arm them with more precise information that will allow them to focus their objections to the income tax and thereby lobby more effectively for real tax reform.
FIN 48, Accounting for Uncertainty in Income Taxes (FASB 2006), requires firms to disclose tax reserves and to record changes in tax reserves at adoption of FIN 48 as cumulative effect adjustments in stockholders’ equity. We predict that between the enactment and adoption of FIN 48, relative to historical levels, firms settle disputes more often to potentially decrease visibility to the IRS and release reserves more often to reduce scrutiny and increase earnings (as opposed to retained earnings). We analyze 2005 and 2006 10-Qs and 10-Ks for the 100 largest nonfinancial, nonutility firms followed by analysts. Between enactment and adoption of FIN 48, relative to historical levels, firms report more settlements with tax authorities and release reserves more frequently. In addition, firms with higher IRS deficiencies are more likely to settle disputes. Between enactment and adoption of FIN 48, firms increased earnings by releasing 4.5 billion released at adoption.
In this paper I review and describe the income tax disclosures currently required in firms’ financial statements. I discuss many of the problems with trying to estimate a firm’s actual tax liabilities and taxable income from the income tax expense and disclosures to the financial statements. In doing so, I reveal the conditions under which taxable income may most accurately be estimated from financial statements as well as those conditions which make this task difficult, if not impossible. Comments welcome.
I investigate the role of book-tax differences in indicating the persistence of earnings, accruals and cash flows for one-period-ahead earnings. I also examine whether the level of book-tax differences influences investors' assessments of future earnings persistence. I find that firm-years with large book-tax differences have earnings which are less persistent than firm-years with small book-tax differences. Further, the evidence is consistent with investors interpreting large positive book-tax differences (book income greater than taxable income) as a "red flag" and reducing their expectation of future earnings persistence for these firm-years. However, for firm-years with large negative book-tax differences (book income less than taxable income), investors overestimate the persistence of the accrual component of earnings, consistent with prior research (e.g., Sloan 1996). Finally, analyst forecast data provide evidence consistent with analysts utilizing the information in the book-tax differences in a manner similar to investors: forecast errors for firm-years that have large positive book-tax differences are less optimistic.
This essay considers the past, present, and future of tax privacy. Regarding the past, it took until 1976 for the concept of tax privacy to be explicitly established in statutory law. Congress established this concept in Section 6103 of the Internal Revenue Code, but has also made it subject to numerous exceptions. In the present, much personal financial information is now accessible out of the tax context and is regulated by other statutes and regulations. This result has made the area of tax privacy somewhat less exceptional today as a regulatory area than in the past. Finally, in the future, tax information in the electronic age will be subject to the same critical issues, such as those involving data security, as other personal information. In conclusion, tax information remains important, but is increasingly subject to the same forces-legal and technical-as other personal information.
The danger of an oppressive majority faction is an obvious concern in a democracy, one that is frequently expressed by income tax opponents who argue that it “soaks the rich” by shifting most of the tax burden onto the wealthy few. In reality, however, the minority can exercise the same deleterious power. Shaping Public Opinion and the Law: How a “Common Man” Campaign Ended a Rich Man's Law, explores one example of the latter situation. Through extensive lobbying, media use, and rhetorical appeals to the common man a small organization of wealthy individuals achieved a surprising reversal of a newly passed provision that affected only the relatively rich — less than 10% of the population. Although this campaign occurred over 70 years ago, both its method and subject matter are still relevant and controversial. It provides perspective on the recurrent tension between the right to know and privacy still being played out in the income tax area, as evidenced by recent calls for publicity of tax returns. At the same time, it illuminates the power of a small, committed number of individuals to effect political change by harnessing the support of the common man, a technique still frequently used, as in the recent battle to repeal the estate tax.
Using Enron's Annual Report information, the authors demonstrate how currently available financial statement data can be used to guesstimate a publicly traded corporation's tax status. They summarize the existing financial accounting literature on income tax disclosure and point out the gaps in such disclosure that make it difficult (impossible) to precisely discern the corporation's federal income tax status.
We extend research on the determinants of corporate tax avoidance to include the role of Internal Revenue Service (IRS) monitoring. Our evidence from large samples implies that U.S. public firms undertake less aggressive tax positions when tax enforcement is stricter. Reflecting its first-order economic impact on firms, our coefficient estimates imply that raising the probability of an IRS audit from 19 percent (the 25th percentile in our data) to 37 percent (the 75th percentile) increases their cash effective tax rates, on average, by nearly two percentage points, which amounts to a 7 percent increase in cash effective tax rates. These results are robust to controlling for firm size and time, which determine our primary proxy for IRS enforcement, in different ways; specifying several alternative dependent and test variables; and confronting potential endogeneity with instrumental variables and panel data estimations, among other techniques.
JEL Classifications: M40; G34; G32; H25.
Japan's tax system, which has changed notably through periods of war, post-war reconstruction, rapid economic development, and moderated economic growth, provides outstandingly rich material for in-depth study. In this comprehensive and incisive work, Professor Ishi makes available to English-speaking readers both a detailed description and a perceptive critique of that system. Part I introduces the system in historical and contemporary context and sets out its main features. Part II is devoted to individual income tax - the most important of Japan's taxes - and Part III covers corporate and capital taxation. In Part IV, Professor Ishi provides a detailed analysis of the structure of the indirect tax system in Japan, which proved crucial to tax reform movements in the late 1980s, while Part V discusses the significance of recent tax innovations. This fully revised third edition explores the Japanese government's latest round of tax reforms - a reaction to the country's prolonged period of recession following the collapse of the 'bubble' phenomenon in 1991. Two brand new chapters discuss the effect of environmental taxes and land tax reform, and much of the original data and empirical material has been updated. Professor Ishi's unrivalled experience, including his service on the Tax Advisory Commission (most recently as its Chairman), his activities in scholarly international public finance organizations, and his work in teaching and research, notably in the United States, Italy, and Australia, have enabled him to produce an authoritative and stimulating view of Japan's tax system. His book will be invaluable to all scholars of the theory and practice of taxation. Available in OSO: http://www.oxfordscholarship.com/oso/public/content/economicsfinance/0199242569/toc.html
The strength of the behavioral response to a tax rate change depends on the environment individuals operate in, and may be manipulated by instruments controlled by the government. We first derive a measure of the social benefit to affecting this elasticity. The paper then examines this effect in the solution to the optimal income taxation problem when such an instrument is available, first in a general model and then in an example when the government chooses the income tax base.
In 1995 a group of 1724 randomly selected Minnesota taxpayers was informed by letter that the returns they were about to file would be ‘closely examined’. Compared to a control group that did not receive this letter, low and middle-income taxpayers in the treatment group on average increased tax payments compared to the previous year, which we interpret as indicating the presence of noncompliance. The effect was much stronger for those with more opportunity to evade; in fact, the difference in differences is not statistically significant for those who do not have self-employment or farm income, and do not pay estimated tax. Surprisingly, however, the reported tax liability of the high income treatment group fell sharply relative to the control group.
This paper analyses tax morale in several Asian countries. The descriptive analysis indicates that tax morale is very low in the Philippines and relatively high in Japan, China, and Bangladesh. In general Asia has a higher tax morale than OECD countries, which might indicate cultural differences. The paper also analyses tax morale as a dependent variable and thus gives answers to what shapes tax morale. Pooling the Asian countries we find, e.g., that trust in the government and the legal system have a positive effect on tax morale. These results remain robust for India and Japan in a time series analysis.
Calls for eliminating differences between accounting earnings and taxable income in the US have been debated extensively. Proponents of increased book-tax conformity argue that tax compliance will increase and earnings quality will improve. Opponents argue that earnings quality will decline. We examine whether the level of required book-tax conformity affects earnings persistence and the association between earnings and future cash flows. We develop a comprehensive book-tax conformity measure and find that earnings have lower persistence and a lower association with future cash flows when conformity is higher. Our evidence suggests that increased book-tax conformity may reduce earnings quality.
The public spotlight has emerged as a potential instrument for stopping corporations from pursuing shady tax shelters. The inadequacy of the exclusive use of monetary penalties and targeted statutory fixes has recently led politicians and academics to suggest that the federal government consider an approach to the corporate tax abuse problem that has been used in other contexts for thousands of years - public shaming. This Article considers the merits of public shaming as a deterrent of corporate tax abuse. While several commentators have focused on the potential advantages of shaming sanctions as a response to corporate tax abuse, this Article examines their potential disadvantages. My claim is that, in contrast to their successful use in other tax enforcement contexts, shaming sanctions would likely fail to deter corporations from pursuing abusive tax shelters and, instead, could have the unintended effect of weakening important aspects of tax compliance. As a result, I conclude that shaming should be rejected as a means of reducing corporate tax abuse.
For a long time I have thought I was a statistician, interested in inferences from the particular to the general. But as I have watched mathematical statistics evolve, I have had cause to wonder and to doubt. And when I have pondered about why such techniques as the spectrum analysis of time series have proved so useful, it has become clear that their “dealing with fluctuations” aspects are, in many circumstances, of lesser importance than the aspects that would already have been required to deal effectively with the simpler case of very extensive data, where fluctuations would no longer be a problem. All in all, I have come to feel that my central interest is in data analysis, which I take to include, among other things: procedures for analyzing data, techniques for interpreting the results of such procedures, ways of planning the gathering of data to make its analysis easier, more precise or more accurate, and all the machinery and results of (mathematical) statistics which apply to analyzing data.
We use a simple model to outline the conditions under which corporate investment is sensitive to nonfundamental movements in stock prices. The key prediction is that stock prices have a stronger impact on the investment of "equity-dependent" firms-firms that need external equity to finance marginal investments. Using an index of equity dependence based on the work of Kaplan and Zingales, we find support for this hypothesis. In particular, firms that rank in the top quintile of the KZ index have investment that is almost three times as sensitive to stock prices as firms in the bottom quintile. © 2001 the President and Fellows of Harvard College and the Massachusetts Institute of Technology
This paper studies the evolution of income concentration in Japan from 1886 to 2005 by constructing long-run series of top income shares and top wage income shares, using income tax statistics. We find that (i) income concentration was extremely high throughout the pre-WWII period during which the nation underwent rapid industrialization; (ii) a drastic de-concentration of income at the top took place in 1938-1945; (iii) income concentration remained low during the rest of the century but shows some sign of increase in the last decade; and (iv) top income composition in Japan has shifted dramatically from capital income to employment income over the course of the twentieth century. We attribute the precipitous fall in income concentration during WWII primarily to the collapse of capital income due to wartime regulations and inflation. We argue that the change in the institutional structure under the occupational reforms made the one-time income de-concentration difficult to reverse. In contrast to the sharp increase in wage income inequality observed in the United States since 1970, the top wage income shares in Japan have remained relatively stable over the last thirty years. We show that the change in technology or tax policies alone cannot account for the comparative experience of Japan and the United States. Instead we suggest that institutional factors such as internal labor markets and union structure are important determinants of wage income concentration. Copyright by the President and Fellows of Harvard College and the Massachusetts Institute of Technology.
The 2008 U.S. financial upheaval raises important questions about the sources of household consumption and debt growth, along with their macroeconomic effects. We argue that spending and financial preferences evolve as social norms interact with both cultural trends and institutional changes in household finance. We identify historical forces that raised consumption and debt over the past quarter century and interpret these events with Hyman Minsky's financial cycle framework. Strong consumption helped moderate recessions and boost growth since the mid 1980s. But unprecedented household debt has now culminated in a financial crisis that threatens to cause a deep recession.
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2001
2.2500
982
2.2986
1418
2002
2.2461
754
2.2834
1065
2003
2.2129
870
2.2557