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

21 Pages Posted: 6 Jul 2012

See all articles by Paolo M. Panteghini

Paolo M. Panteghini

Department of Economics and Management; CESifo (Center for Economic Studies and Ifo Institute for Economic Research)

Maria Laura Parisi

University of Brescia, Department of Economics and Management

Francesca Pighetti

University of Brescia - Department of Economics

Date Written: June 29, 2012

Abstract

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

Panteghini, Paolo M. and Parisi, Maria Laura and Pighetti, Francesca, Italy's ACE Tax and Its Effect on a Firm's Leverage (June 29, 2012). CESifo Working Paper Series No. 3869, Available at SSRN: https://ssrn.com/abstract=2101063

Paolo M. Panteghini (Contact Author)

Department of Economics and Management ( email )

Contrada Santa Chiara 50
BRESCIA, BS 25122
Italy

CESifo (Center for Economic Studies and Ifo Institute for Economic Research)

Poschinger Str. 5
Munich, DE-81679
Germany

HOME PAGE: http://www.cesifo.de

Maria Laura Parisi

University of Brescia, Department of Economics and Management ( email )

via San Faustino 74/b
Brescia, 25122
Italy
+39 0302988826 (Phone)
+39 0302988837 (Fax)

Francesca Pighetti

University of Brescia - Department of Economics

Via San Faustino 74B
Brescia, 25122
Italy

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