Abstract: Tax competition has both positive and negative impacts on economic growth, and this impact on economic growth is mainly exerted through affecting corporate decision and the provision of public service. Through the test of the hypothesis of economic growth threshold, this paper finds that the positive effect of tax competition is greater than its negative effect in regions with higher level of economic development, and thus promoting economic growth. While in regions with lower level of economic development, the positive effect is smaller than the negative one, therefore restraining economic growth. In addition, the result also shows that there is actually no vicious tax competition in China yet, but the regional tax burden is not consistent with the local economic development. It is thus clear that only by making rational use of tax competition means can local governments achieve sustainable development of local economy.

Key words: tax competition; tax burden; economic growth; threshold hypothesis