Tax competition is the bane of governments worldwide seeking higher levels of tax receipts.
On the other hand, tax competition is an effective force protecting taxpayers from higher taxes. At the state and local levels, governments must compete for private sector investment in much the same way that companies compete for customers. State where taxes are low consistently lure private investment away from states where taxes are high. Similarly, if a state imposes a beer or cigarette excise that is lower than in surrounding states, the low-tax state will gain sales from the residents of surrounding states who live near the border. Cigarette and beer excise taxes have been many politicians favorite revenue raisers for years, and no year was better proof than 1998.