Does Dividend Tax Impede Competition for Corporate Charters?

High dividend income tax in the U.S. can impede state competition in the market for corporate charters. We offer a model to formalize the mechanism through which dividend tax lowers the incentives for a state legislator to refrain from enacting takeover regulations. We test a key driver within the model, that dividend tax exacerbates agency conflicts between management and shareholders, making takeover regulations less consequential to the corporations that have their shareholders subject to the tax. The implication, that under a dividend tax cut, firms governed by fewer anti-takeover provisions would react more by increasing dividends and reducing overall investment, is borne out in the data.