The Impact Of Industrial Agglomeration On Local Governments' Tax Competition

After the reform and opening up,the local governments? tax competition of China was born out of the fiscal decentralization and market economy reform,while the rapid development of industrial agglomeration has changed the local economy.Based on the tax competition theory of new economic geography,this paper studies the impact of industrial agglomeration on local governments? tax competition and analyzes the tax competition strategy of local governments in response to industrial agglomeration in the new era in order to provide a more realistic theoretical reference for public policy formulation to promote the coordinated development of regional economy by unifying industrial agglomeration and local governments? tax competition into an analytical framework.Firstly,from the perspective of theoretical basis,industrial agglomeration brings spillover effect of external economics of scale,which forms a benefit so-called “agglomeration rent”.When the agglomeration reaches a certain level,local government can get more tax revenue based on the effect of “agglomeration rent” to avoid the phenomenon of “race to the bottom” deriving from the Basic Tax Competition Model that local governments reduce tax rate continually to attract more production factors.Secondly,from the perspective of current situation,the main forms of local governments? tax competition are regional tax incentives and taxation administration.What?s more,according to the specialization agglomeration and total agglomeration level,the thirty provinces of China can be divided into four areas: “high-specialization and high-output” area,“low-specialization and high-output” area,“high-specialization and low-output” area and “low-specialization and low-output” area.Thirdly,from the perspective of empirical analysis,this paper examines the local governments? tax competition behavior in different regions based on the spatial econometric model which was added into tax strategy response variable and three regional dummy variables.The empirical result shows that industrial agglomeration has influenced local governments? tax competition obviously and the governments in “high-specialization and high-output” area has got more tax revenue from “agglomeration rent” and got rid of the period of “race to the bottom”.In addition,local governments tend to tax "agglomeration rent" from shared taxes between central and local governments,including enterprise tax,personal income tax and added-value tax,while local governments do not tax " agglomeration rent " from property taxes.Finally,from the perspective of reform path,in order to get a better economic environment,governments should focus on improving the level and quality of regional industrial agglomeration,standardizing and clearing tax preferences,accelerating the construction of local tax system and improving the promotion and assessment system of local officials.