It's an epidemic. This just in from Purdue Center for Regional Development: "A small group of cities and towns in Northeast Ohio is trying to figure out strategies to share revenues. In this way, they hope to curb the destructive competition among cities and towns within the region. You can learn more about this initiative from [the Regional Economic Revenue Study] web site."
There some great success stories of governments encouraging cooperation from the last quarter of the 20th century: Denmark's small business networks, Emilia-Romagna's linking up its hundreds of thousands of small businesses, for example. In lean times, links fill in many gaps.