The effects of tax incentives for dwelling renovations: the case of Italy

The Superbonus denotes a generous tax credit for the energy-efficiency renovation of residential buildings that was introduced in Italy during the Covid-19 pandemic. The Superbonus is characterized by a tax credit higher than the cost of the renovation (110%) and by its transferability to third parties – both of which to our knowledge were unprecedented features within the Italian tax system. Shortly before the pandemic, another tax credit had been introduced, the so-called Facades Bonus, designed for outside redecoration and repair of buildings, with a 90% tax incentive. Over the period covered by our study, 2020-2023, the take-up of the two incentives was €186 billion (9% of GDP). We use a synthetic control method to assess the combined additive effect of these two tax credits and indirectly evaluate their performance as a counter-cyclical fiscal policy tool. Our results suggest that the incentives generated a significant amount of additional investment in residential construction, around €116 billion, that would not have taken place otherwise, thereby providing a significant stimulus to the economy. However, we estimate that close to €70 billion of the expenditure related to subsidised investments would have been carried out anyway, thanks also to pre-existing and less generous incentives for dwelling renovations. As such, our analysis casts serious doubts on the cost-effectiveness of the incentives, which also raise significant concerns in terms of distributional impacts and fairness.