Tax Competition and Digital Industry Agglomeration

Abstract

The digital economy has become a crucial engine driving high-quality development in China. Based on panel data of 296 prefecture-level cities in China from 2009 to 2022, this paper empirically examines the impact, mechanisms, and heterogeneity of inter-regional tax competition on the level of digital industry agglomeration. The findings are as follows: First, tax competition exerts a significant inhibitory effect on digital industry agglomeration, and this conclusion remains robust after a series of robustness tests. Second, mechanism analysis indicates that tax competition does not function directly but indirectly inhibits industrial agglomeration through the mediating pathway of "weakening fiscal investment intensity," revealing the underlying logic that it erodes the fiscal capacity of local governments and undermines the long-term development foundation of industries. Furthermore, heterogeneity analysis shows that the inhibitory effect is more pronounced in coastal regions, areas with a higher level of digital infrastructure, and regions with more preferential tax policies, highlighting the imbalance of policy effects. This paper provides new empirical evidence for understanding government behavior and the coordinated development of regional economies, and offers important theoretical basis and policy implications for optimizing regional policy coordination and transforming industrial policies from "race-to-the-bottom in taxation" to "environment creation."