Italy's ACE Tax and Its Effect on a Firm's Leverage
21 Pages Posted: 6 Jul 2012
Date Written: June 29, 2012
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.
Keywords: ACE, business taxation, leverage
JEL Classification: H250, H320
Suggested Citation: Suggested Citation