Abstract: Breaking market segmentation and improving market competition mechanisms are of great significance for forming a new development pattern of dual-circulation and promoting high-quality economic development. Based on the panel data of prefecture level cities, this article uses the price method to construct a market segmentation index, and empirically analyzes the impact of tax sharing on market segmentation. The result shows that a higher tax sharing ratio between provinces and cities improves local government's financial resources, ensures investment in transportation infrastructure, weakens tax competition between governments, and helps to break market segmentation. After using the Bartik instrumental variables constructed by the moving share method to solve the endogeneity issues, the conclusion still holds. Heterogeneity analysis shows that there are differences in government financial resources and infrastructure construction among eastern, central, and western regions, which will affect the prices and circulation of goods, leading to differences in local market protection policies. The impact of tax sharing on market segmentation in the eastern region is greater. Further analysis reveals that the impact of official tenure and tax sharing on market segmentation has a certain substitutive effect, and the increase in official tenure weakens the impact of tax sharing on market segmentation. This article provides empirical evidence for promoting the development of intercity market integration. Timely adjusting the tax sharing ratio can accelerate the process of market integration. At the same time, policy adjustments need to be tailored to local conditions and cannot be done all at once.
