This study investigates the impact of tax competition, fiscal autonomy, institutional quality, and local government competition on firm performance across 63 provinces in Vietnam during 2016–2022. Using a balanced panel dataset and employing the Difference Generalized Method of Moments (D-GMM), the study provides four key findings. First, tax incentives improve firm performance only when the net benefits exceed fiscal costs; the Benefit-Cost indicator shows a strong positive effect. Second, fiscal autonomy and local government competition negatively affect profitability in contexts where institutional capacity is weak, implying that decentralization without effective governance may increase transaction costs and reduce efficiency. Third, both tax competition measures (Taxgap, Com2) exhibit significant negative effects, illustrating a “race to the bottom” where widespread incentives erode fiscal resources and undermine public investment. Fourth, institutional quality (PCI) and technological readiness (ICT) display positive, though modest, effects, suggesting that institutional improvements enhance the effectiveness of tax and fiscal policies. Control variables including labor productivity, revenue growth, firm size, and leverage behave as expected, confirming their importance in shaping firm performance. The findings highlight that tax policies are necessary but insufficient; institutional quality, governance capability, and infrastructure are the decisive conditions for improving enterprise efficiency.
Phong et al. (Sat,) studied this question.