Tax Policy, Investment Decisions and Economic Growth

This paper evaluates the impact of the taxation system on factor costs, investment and economic activity. This is performed on the basis of detailed analysis of the Italian tax system and the production of own estimates of the user cost of capital to labour, which capture the contribution of tax rates, tax incentives and other underlying factors. The study identifies the link between user cost and investment in the context of a full econometric model of investment demand determinants that includes aggregate demand, expectations and uncertainty. Finally, the study evaluates the past contribution of taxation to investment and economic activity, and assesses the impact of future tax reform proposals