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Abstract By employing both theoretical analysis and empirical estimation， this paper examines tax competition among local governments in China， with a specific focus on whether it demonstrates convergent or differentiated characteristics. Firstly， we employ a Complete Information Dynamic Game Model to derive the subgame perfect Nash equilibrium in tax competition scenarios for regions with varying levels of economic development. Then， using panel data of 282 regions during the period from 2005 to 2021 and considering overall tax burden， value-added tax burden， and corporate income tax burden， we empirically estimate tax reaction functions through the Quasi-Maximum Likelihood estimation method. Our theoretical analysis finds that relative disparities in economic development play a crucial role in shaping strategic behavior among local governments engaged in tax competition. Specifically， refined equilibrium outcomes of tax competition games between regions with similar or comparable levels of economic development indicate convergent competition， while regions characterized by greater disparities in economic development tend to exhibit a form of differentiated tax competition. Moreover， we carefully address the issues related to the heterogeneous impact of common shocks and the lagged reaction of local tax policies to spatially related regions， revealing significant differences in tax competition forms across different tax categories. More specifically， the reaction coefficients for total tax and value-added tax are negative， suggesting a negative correlation between overall tax burden and value-added tax burden across regions， indicating a differentiating form of tax competition. On the other hand， the reaction coefficient for corporate income tax is positive， indicating a positive correlation between corporate income tax burden among regions， indicating a convergence form of tax competition.
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Received: 08 December 2023
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2023, Vol. 62 
