Italy During World War II
The setting for Life Is Beautiful is Italy during World War II, and any setting placed in this time period is the research equivalent of a white-rabbit hole.
You can dive deeper and deeper and deeper and deeper. You can read book after book on this period in history, chart intricate timelines, and pick out historical inaccuracies. By the time you're done, you'll have fallen through the center of the earth and come out the other side where people walk upside down.
To keep you right-side up—and to prevent you from reading an encyclopedia of info—we're going to stick with the basics here and focus on the question: Why is it important that this film is set in this time period?
Initially, the story sticks to an Italian city in 1939. World War II isn't in full swing, and the city is seen as an inviting place. As Guido and Ferruccio first explore the city, they are blown away by how wonderful it is:
GUIDO: Look at this! Didn't I tell you? We're in a city. You can do whatever you want. If you want to do something, you do it. You want to let yourself go? You want to yell? Yell!
[Ferruccio starts yelling.]
GUIDO: Stop it! What are you, crazy? You can't act like you do in the country. You've been yelling like a madman. You can't yell!
There are a few hints of what's to come, though. Eliseo is victimized by two anti-Semitic attacks in which his property's damaged and he's knocked to the ground. The school children are given a lecture on the superiority of their race (which Guido magnificently sabotages). And we see the odd Italian soldier here and there.
However, for most of the first half, the city's just a backdrop for the romantic comedy story.
By the time we enter the second half, the cityscape has dramatically changed. Signs of anti-Semitism are more apparent. Store windows have signs saying Jewish people are not allowed to enter, and Guido's storefront is graffitied identifying it as a Jewish-owned business.
The pristine streets of the first half are covered with the signs of war: soldiers, sandbag barricades, and defensive artillery litter the streets.
Through the transformation of the city, Life Is Beautiful visually shows us the result of a society gradually adopting a militaristic and fascist worldview.
What was once an inviting, friendly place of life and love has become oppressive and threatening. The city where people of all walks of life could get together, enjoy the theater, work together, and go on dates has now become a society that has segregated itself and, in the process, is slowly self-destructing.
Life Is Beautiful never names the concentration camp Guido and his family are sent to, but there are some hints that the camp is meant to be Auschwitz. For example, Guido receives a prisoner number tattoo on his arm, and the Auschwitz camp complex is the only location known to have ID'd the prisoners this way.
But other things don't line up with the historical account. Among the more obvious, it was the Soviet army, not the Americans, that liberated the camp on January 27, 1945 (source).
But Life Is Beautiful's goal isn't to be historically accurate. It's telling a more symbolic story, and as a result, its concentration camp setting is less a historical account and more of an artistic reconstruction of the Holocaust's horrors as a whole.
You can see this in…well, do we even need to list the details? There's Guido's hours of forced labor to create armaments for the German army; the gas chamber Uncle Eliseo is sent to; the women sorting the piles of clothes taken from the dead. And, most chilling of all, the mountain of corpses Guido discovers while wandering the camp in the fog.
All of these terrible acts really happened, even if they aren't presented as they would have been in a straight historical drama.
Ironically, in pursuing a goal of symbolism, the film actually downplays the inhumane acts perpetrated at Nazi concentration camps like Auschwitz. The suffering the Holocaust inflicted on its victims was beyond anything we see in the film—arguably beyond anything we could ever capture in a film that wasn't a documentary.
Had the film attempted to capture that historical accuracy, it's likely its uplifting story wouldn't have been possible. Staggering amounts of starvation and death were everywhere in the camps, so it's unlikely that someone of Joshua's age and intelligence would have been ignorant of them, regardless of how convincing his father's stories were.
People would have been dying all around him. In fact, he wouldn't have even made it into the camp. He would've been "selected" when he got off the train.
But as we said, Life Is Beautiful isn't trying to present real history. For better or worse, the film is using the camp as a symbol, contrasting man's inhumanity against his fellow man with Guido's desire to protect his son from it. Whether Life Is Beautiful succeeds with this setting, or whether it should have even attempted such a portrayal in the first place, will be up to you, the viewer.