This is the first paper that looks at regional tax competition within one single country. In many countries in europe, regions within a country differ substantially in their economic development and attractiveness to firms. Belgium is a typical example of a country where the economic situation of its three regions is very different. Our findings are indicative of regional tax competition, with a lower effective tax rate (etr) in the peripheral region of wallonia than in flanders. In addition to location variables, our empirical model explaining firm level heterogeneity in etrs includes firm characteristics, sector membership and variables capturing statutory tax breaks.