The 2017 budget law and recent changes in corporate taxation

he 21st century has opened with huge pressures for a profound transfor-mation of economic systems. The progressive integration of the Eurozone and the ongoing massive worldwide movement in financial and real capital boosted economic growth and high profits for larger firms, at the expense of a prudent assessment of the economic fundamentals of stock, credit and housing markets. In this phase, economic and fiscal policy tried to empow-er the growth process, taking into account expanding economic integration and increasing tax competition. It is well known that the financial crisis abruptly halted this pattern and the European economy contracted sharply after the credit bubble burst. Member countries have been hit differently and recovered with different speeds, thus making evident dissimilar struc-tural problems, especially for those countries in which the financial crisis triggered a sovereign bond crisis. Beyond the country-specific situation and policies, the general difficulty of EU countries in recovering from the crisis lead to a decreasing trust in the EU integration process and conse-quently in the tax harmonisation attitude of member countries. EU policy makers, compelled by the concurring need to consolidate public budgets and to deal with tax competition at financial and corporate level, have generally favoured firms with the aim of consolidating economic recovery. In this general framework, Italy exhibited a specific structural weakness and GDP growth rate is still lagging behind other economic peers. After the severe sovereign bondcrisis in 2011, Italian governments have been forced to focus on fiscal consolidation; nonetheless, budget bills includ-ed tax incentives and other measures to encourage firms to expand their workforce and to invest in assets. Moreover, to narrow the productivity gap2, specific incentives to increase research and development activity and to embrace digital transformation of production processes have been pro-gressively launched. Notwithstanding the fact that four different govern-ments have been in power between 2011 and 2017, the choice to invest in the enhancement of economic activity has been steadily maintained. However, the effects of these stimuli have been much slower to appear than expected, so confirming the predominant role of expectation and business confidence over pure monetary incentives. Notwithstanding this difficulties, we do think that several measures can contribute to a long-run strengthen of economic activity in Italy, whereas in some areas it is still difficult to identify a clear path. In this paper, we try to assess the main provisions that intervened on the corporation tax regime in the recent years, with a focus on the 2017 budget law. The paper is built on the identification of four structural hur-dles to the robust growth of Italian firms (competitiveness, undersized di-mension, debt bias and investment gap) and on the analysis of recent tax provisions designed to deal with these issues. The paper is organised as follows: the first paragraph sketches the four problems and the general content of the 2017 budget law; paragraph 2 discusses the trend in cor-poration tax burden and the recent statutory tax rate change; paragraph 3 describes the new optional regime available for unincorporated firms; paragraph 4 analyses the more recent changes in the Allowance for Equity regime, considering the effectiveness of this measure; paragraph 5 discusses the general framework of investment incentive policies in Italy. Sections 6 concludes.