Cash holdings, tax policies, and institutional environments of innovative enterprises

We discover a positive association between a firm's innovativeness and its cash holdings using data from 11,653 innovative enterprises in 51 non-US economies. This relationship is even stronger now that patent boxes have been implemented, which provide preferential tax treatment for patent income. Additionally, creative multinationals that face increased repatriation taxes amass larger total cash holdings. The positive innovativeness–cash relationship is more pronounced in countries with higher R&D tax credits, less developed financial markets, stronger governance, stronger shareholder rights, more technicians, better infrastructure, and greater investment freedom, as well as in industries with fiercer competition and longer innovation cycles. Innovative organizations with greater cash on hand invest more in research and development and generate more patents. In general, our findings shed light on the factors that contribute to the massive wealth buildup in creative enterprises globally.

¿Influyen los auditores en la agresividad fiscal de sus clientes? Evidencia empírica en las compañías españolas no cotizadas

The purpose of our study was to carry out an empirical test of the extent to which auditors have an influence on the tax practices of the audited firm. Based on a wide sample of Spanish non-listed companies for the period 2009-2017, we have obtained consistent empirical evidence revealing that the choice of a high-quality auditor has a significant impact on the tax planning strategy of the firm. Companies show a greater tax planning aggressiveness when they are audited by one of the Big Four. Notwithstanding, leverage and the existence of tax credits are factors mitigating that aggressiveness. Moreover, abnormally higher audit fees do not seem to be an incentive for the auditor to cooperate in the tax strategies of the audited company. Our results are robust and remain unaltered after adjusting for the potential heterogeneity inherent to auditor’s choice and using alternative variable specifications. Nuestro estudio tiene por objeto verificar empíricamente en qué medida los auditores influyen en las prácticas fiscales de sus clientes. Tomando una amplia muestra representativa de compañías españolas no cotizadas para el periodo comprendido entre 2009 y 2017, hemos documentado resultados empíricos que dejan constancia de que la elección de un auditor de calidad induce un significativo impacto en las estrategias de planificación fiscal de las empresas, que muestran una mayor agresividad tributaria cuando son auditadas por una Big Four. No obstante esta evidencia, el endeudamiento y la presencia de créditos fiscales pendientes de aprovechamiento se erigen como factores mitigantes de esta conducta. Además, la percepción por el auditor de un nivel de honorarios anormalmente elevados no parece generar incentivos para cooperar en las estrategias fiscales de la compañía auditada. Los resultados que hemos documentado son robustos y se mantienen inalterados tras corregir la posible endogeneidad inherente a la elección del auditor y ensayar con especificaciones alternativas de variables.

Household Earnings and Income Volatility in the UK, 2009–2017

We study the volatility of sources of individual and household level income in the UK in the years 2009-2017, following the Great Recession and government austerity. We find that the volatility of (pre-tax) earnings and disposable income has fallen for the working-age in this period, largely due to fewer negative and large earnings shocks. For older individuals, we also find a fall in the volatility of private income, mainly due to fewer positive and large income shocks. Taxes and transfers help stabilise incomes, with social security cash benefits and income-dependent refundable tax credits reducing household private income volatility by around a quarter for the working age, and 40 percent for those aged 60 or over. However, over the sample period, taxes and benefits became less well correlated with earnings, reducing their ability to counteract swings in labour income. The findings illustrate the consequences of fiscal retrenchment and the cut-backs to welfare benefits on the stability of incomes.

Mexico’s auto industry faces formidable challenges

Significance Even after these challenges have passed, other factors will hinder the industry's recovery. The sector accounts for 3.8% of GDP and employs nearly 1 million people, and its decline would have a major economic impact: any loss of investment or fall in production would harm growth and employment prospects. Impacts The adoption of more advanced technologies, requiring training that many Mexican workers lack, will erode the country’s low-wage advantage. US efforts to combat climate change may cause more clashes with Mexico, on top of those caused by proposed electric vehicle tax credits. New fuel efficiency rules for vehicles sold in the United States from 2023 could pose further challenges for Mexican manufacturers.

Instrument policy mix and firm size: is there complementarity between R&D subsidies and R&D tax credits?

Nowadays, a rising number of evaluations investigates a multifaceted concept of the policy mix. Our study specifically focuses on the mix of two most frequently used supply-side instruments–R&D subsidies and R&D tax credits. Drawing on the longitudinal sample of Spanish manufacturing firms, we investigate whether there is a complementary interaction between these policy instruments with respect to product and process innovations. Moreover, by employing a dynamic random-effects probit estimator, we account for the persistence of innovation and endogeneity of public support. The results, that are separately estimated for SMEs and large firms, uniformly show evidence of no interplay between two policy instruments either in SMEs or large firms. However, among factors that influence the propensity to product and process innovations, by far, the largest effect is generated by true state dependence. These findings provide some policy implications for fostering product and process innovations in the long run.