The Effect of Public Disclosure on Reported Taxable Income: Evidence from Individuals and Corporations in Japan Makoto Hasegawa, Jeffrey Hoopes, Ryo Ishida and Joel B. Slemrod
The potential 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 public corporations' financial statements and a proprietary sample of public and private firms offers no evidence that these companies' taxable income declined after the end of the disclosure system.
The Effect of Tax Authority Monitoring and Enforcement on Financial Reporting Quality Michelle Hanlon, Jeffrey Hoopes and Nemit O. Shroff
We examine the relation between tax enforcement and financial reporting quality. We proxy for financial reporting quality using the extent to which accruals map into cash flows and the magnitude of discretionary accruals. We measure tax authority monitoring in the U.S. using data on the probability of IRS audits. In addition, we use a regime shift in tax enforcement in Russia as an alternative test setting. The data provide evidence that higher tax enforcement is associated with higher financial reporting quality and that the relation is generally stronger when other monitoring mechanisms are weaker. Overall, we interpret our evidence as being consistent with the predictions from the Desai, Dyck, and Zingales (2007) theory that the tax authority provides a monitoring mechanism of corporate insiders. Our paper also adds to the literature on the determinants of financial reporting quality and how the relation between accounting standards and reporting outcomes depends on country level institutions.
Do IRS Audits Deter Corporate Tax Avoidance? Jeffrey Hoopes, Devan Mescall and Jeffrey Pittman.
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 2 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.
What Do Firms Do When Dividend Tax Rates Change? An Examination of Alternative Payout Responses to Dividend Tax Rate Changes Michelle Hanlon and Jeffrey Hoopes
This paper investigates the responsiveness of corporate payout policy to individual level taxes. We predict and find a surge of special dividends in the final months of 2010, immediately before individual-level dividend tax rates were expected to increase (but did not). Consistent with prior research on dividend taxes and payout, we find that much of the increase is concentrated in firms largely held by insiders. In addition, we find evidence that firms alter the timing of their regular dividend payments by shifting what would normally be January, 2011 regular dividend payments into December of 2010. To our knowledge this is the first evidence in the literature about the timing of regular dividend payments in response to tax law changes. The changing of the timing of regular dividend payments is consistent with Slemrod's (1992) framework of taxpayer responsiveness to tax changes.
"What Do Firms Do When Dividend Tax Rates Change? An Examination of Alternative Payout Responses to Dividend Tax Rate Changes" Michelle Hanlon and Jeffrey Hoopes
"The Effect of Public Disclosure on Reported Taxable Income: Evidence from Individuals and Corporations in Japan" Makoto Hasegawa, Jeffrey Hoopes, Ryo Ishida and Joel B. Slemrod
"Not Just 35%: An Analysis of Analysts' Forecasts of Effective Tax Rates"
"The Effect of Tax Authority Monitoring and Enforcement on Financial Reporting Quality" Michelle Hanlon, Jeffrey Hoopes and Nemit O. Shroff
"Do IRS Audits Deter Corporate Tax Avoidance?" Jeffrey Hoopes, Devan Mescall and Jeffrey Pittman.
"Accounting and Corruption: A Cross Country Analysis" Steve Albrecht, Chad Albrecht, Jeffrey Hoopes and Ricardo Malagueno