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Will Italy’s Tax Reform Reduce the Corporate Tax Burden? A Microsimulation Analysis

Author

Listed:
  • Filippo Oropallo
  • Valentino Parisi

    (Istat
    Università di Cassino)

Abstract

This paper analyses the impact of the corporate tax reform introduced in Italy in early 2004 on firms’ tax burden with respect to 2001 tax legislation. For this purpose we build a microsimulation model reproducing in detail the Italian corporate tax system under the two regimes. The model is based on an integrated dataset combining ISTAT (National Institute for Statistics) survey data on firms and compan y accounts for the year 2000. The results show that the mean ex-post implicit tax rate increases by 0.26 percentage points, although for firms belonging to groups and opting for tax consolidation the implicit tax rate falls by 1.18 percentage points, demonstrating that groups are favoured by the new system. We also examine the features of both regimes concerning neutrality over company funding decisions. To this end, we develop a sensitivity analysis in which we consider two scenarios in terms of company financial policy (debt, internal sources) and, using the microsimulation tool, compute implicit tax rates in each regime. We find that the new regime widens the distortion in favour of debt an can thus be regarded as less efficient than the previous system.

Suggested Citation

  • Filippo Oropallo & Valentino Parisi, 2007. "Will Italy’s Tax Reform Reduce the Corporate Tax Burden? A Microsimulation Analysis," Rivista di statistica ufficiale, ISTAT - Italian National Institute of Statistics - (Rome, ITALY), vol. 9(1), pages 31-58, march.
    • Handle: RePEc:isa:journl:v:9:y:2007:i:1:p:31-58
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    References listed on IDEAS

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    1. Branko Milanovic, 2002. "True World Income Distribution, 1988 and 1993: First Calculation Based on Household Surveys Alone," Economic Journal, Royal Economic Society, vol. 112(476), pages 51-92, January.
    2. Filippo Oropallo, 2004. "Enterprise Microsimulation Models And Data Challenges," Public Economics 0409005, University Library of Munich, Germany.
    3. Massimo Bordignon & Silvia Giannini & Paolo Panteghini, 2001. "Reforming Business Taxation: Lessons from Italy?," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 8(2), pages 191-210, March.
    4. Messere, Ken & de Kam, Flip & Heady, Christopher, 2003. "Tax Policy: Theory and Practice in OECD Countries," OUP Catalogue, Oxford University Press, number 9780199241484.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Finke, Katharina & Heckemeyer, Jost H. & Spengel, Christoph, 2014. "Assessing the impact of introducing an ACE regime: A behavioural corporate microsimulation analysis for Germany," ZEW Discussion Papers 14-033, ZEW - Leibniz Centre for European Economic Research.
    2. Kayis-Kumar, Ann, 2018. "Implementing corporate tax cuts at the expense of neutrality? A legal and optimisation analysis of fundamental reform in practice," MPRA Paper 89703, University Library of Munich, Germany.
    3. Ruud de Mooij & Michael P. Devereux, 2008. "Alternative Systems of Business Tax in Europe: An applied analysis of ACE and CBIT Reforms," Taxation Studies 0023, Directorate General Taxation and Customs Union, European Commission.
    4. n.d., 2013. "Italy's corporate tax reforms and firm-specific tax rates in the period 1998-2012," STUDI ECONOMICI, FrancoAngeli Editore, vol. 2013(111), pages 51-68.
    5. Jost HECKEMEYER & Katharina FINKE & Christoph SPENGEL, 2010. "ZEW TaxCoMM - A Corporate Tax Microsimulation Model. Concept and Application to the 2008 German Corporate Tax Reform," EcoMod2010 259600072, EcoMod.
    6. Alexander Klemm, 2007. "Allowances for Corporate Equity in Practice," CESifo Economic Studies, CESifo Group, vol. 53(2), pages 229-262, June.
    7. Katharina Finke & Jost H. Heckemeyer & Timo Reister & Christoph Spengel, 2013. "Impact of Tax-Rate Cut cum Base-Broadening Reforms on Heterogeneous Firms: Learning from the German Tax Reform of 2008," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 69(1), pages 72-114, March.
    8. Manzo, Marco & Monteduro, Maria Teresa, 2010. "From IRAP to CBIT: tax distortions and redistributive effects," MPRA Paper 28070, University Library of Munich, Germany.
    9. Kayis-Kumar, Ann, 2015. "Thin capitalisation rules: A second-best solution to the cross-border debt bias?," MPRA Paper 72031, University Library of Munich, Germany.
    10. Daniela Federici & Valentino Parisi & Caroline Elliott, 2015. "Do corporate taxes reduce investments? Evidence from Italian firm-level panel data," Cogent Economics & Finance, Taylor & Francis Journals, vol. 3(1), pages 1012435-101, December.

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    More about this item

    Keywords

    Corporate tax; Data matching; Microsimulation; Effective tax rates; Performance indicators; Tax efficiency;
    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

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