Spatial Corporate Tax Competition and Income Inequality: Evidence From China

This paper examines the relationship between corporate tax competition and income inequality using panel data from 243 prefecture-level cities in China over 15 years. The results suggest an association between lower corporate tax rates and higher income inequality. Spatial analysis reveals significant clustering of corporate tax rates across regions, implying that local tax decisions may be influenced by neighboring cities. Estimates from the Spatial Durbin Model indicate the presence of spatial spillover patterns: lower corporate income tax rates in adjacent areas are correlated with lower local inequality. These patterns remain consistent across several robustness checks, including the inclusion of control variables and alternative model specifications. Moreover, the association between corporate tax rates and inequality appears to differ by wage level. In high-wage regions, higher corporate tax rates are linked to higher income inequality, while in low-wage regions, the relationship may differ.