Based on the conditions of product market competition, this paper discusses the impact mechanism of tax preference on the innovation output of enterprises, and takes the listed companies of strategic emerging industries in 2009-2016 as the research sample to test the impact of tax preference on enterprise innovation. The regulatory effect of innovation output and product market competition is analyzed. The results show that, first of all, there is an inverted U-shaped relationship between tax preference and innovation output of enterprises, but the intensity of preference has not reached the inflection point of the U-shaped curve, the incentive effect is dominant and the supporting effect is obvious. Secondly, product market competition weakens the incentive effect of tax preference on innovation output. Third, the transmission effect of product market competition plays a role by influencing the R&D investment of enterprises. This study explains Schumpeter effect from another perspective and provides guidance for optimizing Chinese government subsidy policy and improving patent protection policy.