Abstract: Due to the differences of the degree of regional economic agglomeration, the tax competition between China’s local governments can be divided into“race to the bottom”and“race to the top”. The industrial agglomeration would also have a significant impact on the local tax competition. This paper makes an empirical analysis based on the panel data of China’s 30 provincial administrative regions during 2006-2011. The results show that there exist significant differences in the behaviors of tax competition among the regions, and the industrial agglomeration also has different impacts on the tendence of local tax competition. Therefore, when coordinating tax benefits among the regions, the central government should treat the economic regions with different natures differently, and improve the level of economic agglomeration, i.e., to realize the spontaneous tax coordination between the non-homogeneous regions by making use of the agglomeration rent, at the same time, the tax bebefit coordination between homogeneous regions should be strengthened.

Key words: local tax competition; agglomeration effect; industrial tax burden; capital flow