Regional economic growth, digital economy and tax competition in China: mechanism and spatial assessment

Abstract

This paper assesses tax competition in China across provinces as well as time-space and examines the direct and spatial effects of economic growth on tax competition using data from 31 provinces in China from 2011-2020. Additionally, digital development and fiscal governance are measured using the TOPSIS model based on the EWM and text analysis methods, and the moderating effect of two between economic growth and tax competition is evaluated. The results suggest a general phenomenon of tax competition among provinces in China, which is a “race to the bottom” and a significant spatial spillover effect. In fact, economic growth at the provincial level has significantly weakened tax competition, and there is a potential weakening of tax competition in neighbouring provinces. While the digital economy and fiscal governance at the provincial level are relatively low in China, both reinforce the weakening effects of economic growth on tax competition.