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An economic assessment of the evolution of the corporate tax system in Italy

Ernesto Zangari ()
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Ernesto Zangari: Bank of Italy

No 1291, Temi di discussione (Economic working papers) from Bank of Italy, Economic Research and International Relations Area

Abstract: This paper provides an assessment of the evolution of the Italian corporate tax system over the last decade through the computations of new and updated effective tax rates. The analysis takes into account the specificities of Italy’s Allowance for Corporate Equity (ACE) and looks at the evolution of market interest rates to evaluate the effects. It relies on a new method to measure the effect of the limits to the deductibility of the cost of debt. Over the period 2010-2020, the legislative changes led to effective taxation becoming highly volatile. This dynamic was mostly driven by the evolution of the ACE regime. Since 2016, the temporary tax incentives for purchasing machinery greatly reduced the cost of capital. However, since 2019 the provision that phased out the incentives at higher-levels of investment may have lowered their effectiveness for larger firms. The analysis also shows that ACE has better economic properties than the Mini-Ires regime that replaced it temporarily in 2019, in terms of incentive to invest and to increase equity funding.

Keywords: taxation; effective tax rates; corporate taxation; EMTR; allowance for corporate equity (search for similar items in EconPapers)
JEL-codes: H25 H32 H71 (search for similar items in EconPapers)
Date: 2020-09
New Economics Papers: this item is included in nep-acc, nep-cfn, nep-isf and nep-pbe
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Persistent link: https://EconPapers.repec.org/RePEc:bdi:wptemi:td_1291_20

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