That Romeo and Juliet is set in Renaissance Venice should come as no surprise. The Elizabethans were both fascinated and repelled by Italy in equal measure, seeing it as a rather colorful, exotic place full of strange customs and traditions. Italy was also a devoutly Catholic country, which to the fiercely Protestant Elizabethans explained its penchant for tyranny, both spiritual and temporal. But above all, Italians were believed to be a very passionate people, and this naturally attracted Shakespeare and other Elizabethan playwrights, who exploited this perceived national character trait to create enduring works of drama.
The love that Romeo and Juliet share is not just intense, it's also deeply subversive of the existing social order. The star-cross'd lovers are knowingly defying their parents, who, as is customary, reserve the right to decide their children's future marriage partners. Such an attack on established custom cannot take place on English soil, as this would be much too close to home. Throughout his works, Shakespeare showed himself alive to the dangers of undermining traditional authority in his native country. So what better place to set such a tale of all-consuming, socially-subversive love and desire than a land where the Elizabethans expected this sort of thing to happen.