How effective is an incremental ACE in addressing the debt bias? Evidence from corporate tax returns

Nicola Branzoli and Antonella Caiumi

No 72, Taxation Papers from Directorate General Taxation and Customs Union, European Commission

Abstract: The Allowance for Corporate Equity (ACE) introduced in Italy in 2011 has decreased the fiscal distortion between the costs of equity and debt by introducing the deductibility from taxable income of a notional return on capital increases. In this paper we estimate the impact of the ACE on the leverage ratio of Italian manufacturing firms. Using a novel instrumental variable approach to identify the causal effect, we find that the introduction of the incremental ACE has substantially reduced the leverage ratio of its beneficiaries. The effect of the reform increases with age and decreases with the size of the enterprise. These results suggest that an incremental ACE may be an effective policy tool to reduce the leverage ratio of European firms

Keywords: Allowance for Corporate Equity; Corporate Leverage; Debt-Equity Bias (search for similar items in EconPapers)
JEL-codes: G32 H25 H32 (search for similar items in EconPapers)
Pages: 36 pages
Date: 2018-06
New Economics Papers: this item is included in nep-cfn, nep-eur and nep-pbe
References: Add references at CitEc
Citations: View citations in EconPapers (6)

Downloads: (external link)
https://ec.europa.eu/taxation_customs/sites/taxati ... ion-paper-72-ace.pdf final version, 2018 (application/pdf)
Our link check indicates that this URL is bad, the error code is: 404 Not Found (https://ec.europa.eu/taxation_customs/sites/taxation/files/taxation-paper-72-ace.pdf [301 Moved Permanently]--> https://taxation-customs.ec.europa.eu/sites/taxation/files/taxation-paper-72-ace.pdf [301 Moved Permanently]--> https://taxation-customs.ec.europa.eu/sites/default/files/taxation-paper-72-ace.pdf)

Related works:
Journal Article: How effective is an incremental ACE in addressing the debt bias? Evidence from corporate tax returns (2020)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:tax:taxpap:0072

Access Statistics for this paper

More papers in Taxation Papers from Directorate General Taxation and Customs Union, European Commission Contact information at EDIRC.
Bibliographic data for series maintained by Gaetan Nicodeme () and Ana Xavier () and Ioana Diaconescu ().