Abstract: Based on panel data of 1081 listed industrial enterprises in China, this paper used corporate income tax sharing rate on the municipal level to measure the tax sharing and found a significant "inverted U-shape" relationship between tax sharing and enterprise innovation. The result shows that as the degree of tax sharing increases, its "tax collection incentives" for the government will exceed the "tax base protection incentives", which will cause the impact of tax sharing on enterprise innovation to change from promotion to inhibition. Further, this paper examined the regulating effect of corporate ownership and industry nature on this nonlinear relationship. The results show that the shape of the state-owned enterprise curve is steeper, the turning point shifts to the left, and the overall level of innovation is lower. The curve of high-tech enterprises is steeper, the turning point is shifted to the right and the overall level of innovation is higher.

Key words: tax sharing, corporate innovation, nonlinearity, tax collection incentives, tax base protection