The key and core to balance the “steady growth” and “structural adjustment” lie in the optimization of the industrial structure of the “supply side structural

reforms”. This paper systematically constructs the influence mechanism of market openness, local tax competition with industrial restructuring respectively, and utilizes the panel data of 29 provinces in China from 2003 to 2014 for empirical analysis. The findings shows as follows:Market openness significantly promotes the industrial structuring, but it presents regional differences between international market openness and domestic market openness that the impact on the central and west of China is greater than the east of ChinaOn the one hand the local tax competition accelerates the advancement of industrial structure, on the other hand it will inhibit the rationalization of industrial structure, further this study finds that it weakens the effectiveness of market openness on the rationalization of industrial structureA“pull effect” exists in the process of industrial structure transformation that if structural tax cuts can consistent with industrial structure adjustment, it will increase the tax revenue and promotes industrial restructuring and optimizationLocal fiscal expenditure drives the advancement of industrial structure to a certain extent, however the economic construction expenditure will distort the allocation of resources, inhibiting the rationalization if industrial structure. Tax policy to industrial structure exists a significant structure effect, in other words income tax is more likely to promote industrial restructuring than commodity tax. All findings have important implications for deepening the market opening, correcting the local government competition behavior and implementing the fiscal and taxation system reform.