The Impact of Digitalization Policies. Evidence from Italy’s Hyper-depreciation of Industry 4.0 Investments

Upgrading Italy's Industrial Capacity: Industry 4.0 across Regions and Sectors

“…All in all, pure descriptive evidence seems to suggest that: (i) the uptake of incentive schemes have reached firms located in those regions and sectors having already experienced a path toward digitalization; (ii) these companies in most of cases would have realized the I4.0 investment anyway; (iii) there is a non-negligible share of companies located in Central and Southern regions that in absence of incentives would not have realized the investment 7 . This picture is in line with results in Bratta et al (2020) on fiscal data showing that firms 6 According to the Ministry of Finance data on the uptake of fiscal incentives matched with the ICT survey run by the Italian National Statistical Office, around 85% of firms that benefitted from hyper-depreciation in 2017 had never invested in advanced digital technologies before. 7 Due to the construction of the questionnaire, we are not able to perfectly match investments in I4.0 with the incentive plan since the question on I4.0 investments refers to 2015-2017 while the question on incentives on I4.0 to 2017.…”

“…In fact, DESI includes five domains related to connectivity, human capital, use of internet services, integration of digital technologies and digital public services, whereas our measure of I4.0 adoption refers to both digitization and automation type of techs. 3 This picture is highly consistent with the one in Bratta et al (2020) on the entire population of Italian firms. Focusing on fiscal data and having access to information concerning the uptake of Industry 4.0 fiscal incentives, the authors found that the highest shares of investments benefitting from hyper depreciation are in Northern Italy, with Lombardy (33.2%), Veneto (17.5%) and Emilia Romagna (15.6%) at the top of the ranking.…”

“…In line with our results, and working on the entire population of Italian companies, the authors highlight how firms that invested in (subsidized) digital technologies in 2017 were ex-ante more productive, more likely to invest in R&D and in the acquisition of machinery and equipment, and had higher returns on investments as well as lower levels of indebtedness. Indeed, one should bear in mind that eligibility for the fiscal incentive was granted to all firms with a registered office in Italy, regardless of their business activities 13 It should be acknowledged that such amount is significantly below the ex-ante estimate of the Italian Government of around 10 billion euros (Bratta et al 2020).…”

“…This was, however, not sufficient to eliminate the enduring divides in productive capacities found across geographical areas. As clearly highlighted by Bratta et al (2020), the hyperdepreciation measure introduced by Industry 4.0 National Plan concerned about 7 billion euros of private investments, out of which 83% originated from the manufacturing sector and the majority of recipient firms were small-and medium-sized, located in Northern regions 13 . In line with our results, and working on the entire population of Italian companies, the authors highlight how firms that invested in (subsidized) digital technologies in 2017 were ex-ante more productive, more likely to invest in R&D and in the acquisition of machinery and equipment, and had higher returns on investments as well as lower levels of indebtedness.…”

“…7 Due to the construction of the questionnaire, we are not able to perfectly match investments in I4.0 with the incentive plan since the question on I4.0 investments refers to 2015-2017 while the question on incentives on I4.0 to 2017. Furthermore, incentives of the Industry 4.0 Plan include a wide range of measures such as R&D tax credit, tax depreciation allowances known as super-depreciation which is less generous than hyper-depreciation and not targeting exclusively investments in advanced digital technology but basically all kinds of new machinery and equipment (Bratta et al 2020).…”