Tax Competition And Regional Economic Growth

Since the reform of tax distribution system in 1994,the central government has simplified its administration and decentralized its power.Local governments have certain autonomy.For promotion and local economic development,local government officials have adopted various competitive means to attract resource inflows.Tax competition is commonly used by the government as a means of competition.Local governments adopt tax incentives,financial returns and other means to attract capital and labor inflows,stimulate regional local investment,and then promote regional economic growth.Analyzing the macro data after the reform of tax distribution system,we can find that the local government's tax competition has indeed brought positive effects to the economic growth of various regions,and the local economy has been growing rapidly.However,the implementation of tax competition will also have a negative impact on the economy.The standard tax competition model describes the final equilibrium state of tax competition.The equilibrium tax rate of the society is lower than the optimal tax rate.For economic resources,governments around the world will use tax incentives and other means to reduce tax rates,which will lead to "bottom-to-bottom competition".The reduction of tax rate will lead to insufficient government revenue.The quality and quantity of public goods provided by the government can not meet the requirements.In addition,tax competition destroys the tax order of our country,the tax policy can not be well implemented,and the tax policies enjoyed by different economic entities are different,which also causes unfair competition among different economic entities within the jurisdiction and disturbs the market order of our country.These factors have affected the normal operation of our economy and restrained the growth of our economy.With the rise of new economic geography,industrial agglomeration has been paid more and more attention by scholars.Scholars have begun to link industrial agglomeration with tax competition.According to the "center-periphery" model,industrial agglomeration areas show remarkable economies of scale with strong positive externalities.Enterprises in the central area,that is,industrial agglomeration areas,can obtain excessive scale benefits,which is excessive.The scale benefit can be called "agglomeration rent".The existence of "agglomeration rent" reduces the sensitivity of factors of production to tax rate,while the government can set a higher tax rate to tax "agglomeration rent" without worrying about the outflow of productive resources.Industrial agglomeration reduces the intrinsic incentive for local governments to take preferential tax measures for tax competition.Governments with high level of industrial agglomeration can adopt differentiated tax competition strategies and "top-to-top competition" becomes possible,thus avoiding the negative effects of "bottom-to-bottom competition".Under the background of industrial agglomeration,tax competition can effectively promote regional economic growth.With China's economy entering a new normal,the economic growth rate of each region slows down gradually.Under the existing pattern,the government should seek other ways to promote economic growth.The influence of industrial agglomeration factors should not be ignored,and the formation of industrial agglomeration in each region should be accelerated to add new impetus to economic growth.This paper summarizes the previous literature on tax competition,industrial agglomeration and economic growth,expounds the connotation of the three and defines them.This paper analyses the current situation and existing problems of tax competition,industrial agglomeration and economic growth in China,constructs quantitative indicators,and makes quantitative analysis of the three by using the data of the China Statistical Yearbook,so as to make a more intuitive and clear analysis of the current situation of the three.This paper expounds the theory of tax competition and the mechanism of tax competition,and analyses the positive and negative effects of tax competition on economic growth.This paper expounds the theory of industrial agglomeration and the mechanism of industrial agglomeration,and analyses how industrial agglomeration changes the choice of government fiscal and taxation policies and alleviates the negative impact of tax competition on economic growth.The panel data model is used to analyze the impact of industrial agglomeration on regional tax competition and the impact of regional tax competition at different levels of industrial agglomeration on economic growth.The empirical results are analyzed and constructive policy recommendations are put forward.