Tax Competition Among Chinese Counties: A Spatial Econometric Analysis

Abstract

Using spatial econometric models, the paper explores the issue of tax competition among Chinese counties based on county-level panel data of corporate income tax and sales tax from 2000 to 2006. This paper finds that, on the one hand, there exists significantly positive tax competition with respect to corporate income tax and sales tax among Chinese counties, supporting the hypothesis of tax mimicking; on the other hand, the intensity of tax competition with respect to corporate income tax and sales tax for foreign firms among Chinese counties is greater than that for domestic firms, which is consistent with the theoretical prediction of foreign funds having higher mobility than domestic funds.