Italy's ACE Tax and its Effect on a Firm's Leverage
CESifo, Munich, 2012
CESifo Working Paper No. 3869
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.
Public Finance
Fiscal Policy, Macroeconomics and Growth