Abstract

The increasing political concern for fiscal competition across European countries has induced Italy to implement a wide-ranging reform of capital income and business taxation. We describe the reform, discuss its links with other relevant international experiences and reform proposals, and assess its chances of reaching its declared targets. Our results suggest that the reform has been successful in closing the gap between the tax treatment of different assets and different sources of finance. Its effect on the overall cost of capital, and therefore on the demand for capital, and therefore on the demand for capital, is more uncertain however, and largely depends on the financial choices available to companies.