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Italy's ACE Tax and its Effect on a Firm's Leverage

  • Paolo Panteghini
  • Maria Laura Parisi
  • Francesca Pighetti

This article describes the new ACE-type system implemented in Italy since 2012. We have first shown that this system reduces but does not eliminate the financial distortion due to interest deductibility. Using a dataset of Italian companies, we analyzed the impact of this relief on Italian firm capital structure. Despite the permanence of a tax advantage and its gradual implementation, the ACE relief is estimated to reduce significantly leverage. By decreasing default risk it is also expected to reduce systemic risk.

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File URL: http://www.cesifo-group.de/portal/page/portal/DocBase_Content/WP/WP-CESifo_Working_Papers/wp-cesifo-2012/wp-cesifo-2012-06/cesifo1_wp3869.pdf
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Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 3869.

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Date of creation: 2012
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Handle: RePEc:ces:ceswps:_3869
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