Your scenario isn't exactly what's happening here. But still, regarding your idea: why not? The Amazon HQ2 campaign is a pretty good example how companies are

Your scenario isn't exactly what's happening here. But still, regarding your idea: why not? The Amazon HQ2 campaign is a pretty good example how companies are using tax competition to instigate a race-to-the-bottom. There's no doubt that Amazon would house these employees somewhere. So the payoff is essentially zero-sum. All that's changing is that Amazon is playing different populations against each other to save on tax. Rules against such behaviour are just an effective method to avoid a prisoners' dilemma by the most obvious method known to anyone playing the game: communication, and binding agreement. Now there is an argument that some locales may need to use tax policy if they are behind in every other feature, i. e. education, infrastructure etc. But in fact the EU is a rather successful model of flexibility in that regard: Just look at the incredible economic success of eastern Europe and the Balkans after the end of the cold war, or Portugal, or even Ireland itself. Just compare Belarus to its EU neighbours to get a sense of what's possible. How did this work? The EU does allow for tax incentives or subsidies where regions need to catch up. They also created an enormous system of direct transfers to allow investments into the factors that make regions competitive, such as infrastructure or rule-of-law. As a matter of fact, Ireland simply agreed to the rules, and their scope isn't a matter of any "natural law". If countries agree to conduct themselves by certain rules than that's that. Of course every single rule may occasionally diverge from what any single country would otherwise do, or the rule wouldn't be necessary. But, just as with any intentional law, these rules taken as a whole have empirically been extremely beneficial to its signatories.