Tax Competition, Local Financial Autonomy and Firm Performance in Vietnam

This study assesses the impact of institutional factors such as: the level of local financial autonomy, provincial tax competition, provincial competitiveness, the level of technology use and provincial digital transformation on business performance of enterprises in provinces, cities and different regions of Vietnam, in the period from 2017 to 2021. Introduction: The author based on previous studies, develops research gaps in variable construction, model construction and synthesizes results from econometric models and at the same time gives some implications for businesses and government managers in localities to increase the operational efficiency of businesses located in their provinces. Objectives: The study examines the impact of institutional factors on business performance in localities. Methods: Using cross-sectional regression methods to calculate the level of provincial tax competitiveness, the method of benefit-cost analysis from tax incentives and the D.GMM method with dynamic panel data Results: The results show that local tax competition has an inverse effect on business performance. This result reaffirms that preferential policies in difficult areas do not necessarily help businesses increase investment and improve operational efficiency. The benefit-cost variable from tax incentives has a positive impact on business efficiency. This result shows that if the benefit received from incentives is lower than the loss from incentives, it means that the incentives are redundant or ineffective. The variable Automany2 (composite financial autonomy index) is negatively correlated with operating efficiency. Conclusions: These results are an important basis for making policy recommendations on tax incentive reform, tax competition, and financial autonomy in provinces and cities of Vietnam.