Abstract
This study examines the real effects of tax incentives on managerial decisions regarding capital investments, employment, and tax avoidance among private firms. Even if theory and prior literature show that introducing a tax incentive in the form of a bonus depreciation scheme increases corporate investment, some unexplored aspects remain regarding its real effects. By exploiting Hyper-Depreciation, a provision of the Industry 4.0 plan enacted by the Italian government, the study shows that this kind of tax depreciation scheme stimulates capital investments with heterogeneous responsiveness by firms regarding intangibles compared to tangible assets. Additionally, such an incentive positively affects labour productivity without eroding employment levels. A significant reduction in effective tax rates during the bonus era suggests that firms respond to such a measure by aggressively reaping tax savings.