Discussion Paper

No. 2012-31 | June 27, 2012
Paolo Panteghini, Maria Laura Parisi, and Francesca Pighetti
Italy’s ACE Tax and Its Effect on a Firm’s Leverage

Abstract

This article describes the new ACE-type system implemented in Italy since 2012. The authors first show that this system reduces but does not eliminate the financial distortion due to interest deductibility. Using a dataset of Italian companies, the authors analyze 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.

JEL Classification

H25 H32

Cite As

Paolo Panteghini, Maria Laura Parisi, and Francesca Pighetti (2012). Italy’s ACE Tax and Its Effect on a Firm’s Leverage. Economics Discussion Papers, No 2012-31, Kiel Institute for the World Economy. http://www.economics-ejournal.org/economics/discussionpapers/2012-31

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