Italy's Ace Tax and its Effect on a Firm's Leverage
Economics, Open Access Open Assessment e-Journal, Discussion Paper No. 2012-31
21 Pages Posted: 27 Jul 2012
Date Written: June 27, 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: H25, H32
Suggested Citation: Suggested Citation