I think the net effect of a regional government would be all the current problems of local governments - pork barrel politics, inefficient bureaucracy and corruption on a larger scale. The corruption in local governments always seem to dwarf that at the federal Level, but this is maybe because more get caught.

Overall the whole local tax benefit regime is something of a shell game. There may be no local income tax but you end up paying it property tax. States make up for it in other ways. A similar phenomenon exists for business tax incentives. As soon as those provisions sunset the businesses will just pick up and move somewhere else. An example is the film industry, New Orleans offered Hollywood huge tax incentives to use New Orleans for film production. Once those ended Hollywood went elsewhere - Georgia and the cycle begins again. It does little for the local economy.