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

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  • Ernesto Zangari

    (Bank of Italy)

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.

Suggested Citation

  • Ernesto Zangari, 2020. "An economic assessment of the evolution of the corporate tax system in Italy," Temi di discussione (Economic working papers) 1291, Bank of Italy, Economic Research and International Relations Area.
    • Handle: RePEc:bdi:wptemi:td_1291_20
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    File URL: https://www.bancaditalia.it/pubblicazioni/temi-discussione/2020/2020-1291/en_tema_1291.pdf
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    References listed on IDEAS

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    Cited by:

    1. Chiara Bellucci & Silvia Carta & Sara De Tollis & Federica Di Giacomo & Marco Manzo & Daniela Bucci & Donato Curto & Fabrizio De Grandis & Francesca Sica, 2023. "A Corporate Income Tax Microsimulation Model for Italy," Working Papers wp2023-17, Ministry of Economy and Finance, Department of Finance.
    2. Michael Funke & Raphael Terasa, 2022. "Temporary Super Depreciation Allowances for Green and Digital Investments," CESifo Working Paper Series 9838, CESifo.

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    More about this item

    Keywords

    taxation; effective tax rates; corporate taxation; EMTR; allowance for corporate equity;
    All these keywords.

    JEL classification:

    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • H32 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Firm
    • H71 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Taxation, Subsidies, and Revenue

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