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The Effect of Luxury Taxes on Competitive Balance, Club Profits, and Social Welfare in Sports Leagues

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  • Helmut M. Dietl

    ()
    (University of Zurich)

  • Markus Lang

    ()
    (University of Zurich)

  • Stephan Werner

    ()
    (University of Zurich)

Abstract

This paper presents a model of a professional sports league and analyzes the effect of luxury taxes on competitive balance, club profits, and social welfare. It shows that a luxury tax increases aggregate salary payments in the league and produces a more balanced league. Moreover, a higher tax rate increases the profits of large-market clubs, whereas the profits of small-market clubs only increase if the tax rate is not set inadequately high. Finally, we show that social welfare increases with a luxury tax.

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Bibliographic Info

Article provided by Fitness Information Technology in its journal International Journal of Sport Finance.

Volume (Year): 5 (2010)
Issue (Month): 1 (February)
Pages: 41-51

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Handle: RePEc:jsf:intjsf:v:5:y:2010:i:1:p:41-51

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Keywords: sports league; luxury tax; social welfare; competitive balance;

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References

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  1. Helmut Dietl & Markus Lang & Stephan Werner, 2008. "Social Welfare in Sports Leagues with Profit-Maximizing and/or Win-Maximizing Clubs," Working Papers 0090, University of Zurich, Institute for Strategy and Business Economics (ISU), revised Jul 2009.
  2. Brian P. Soebbing, 2008. "Competitive Balance and Attendance in Major League Baseball: An Empirical Test of the Uncertainty of Outcome Hypothesis," International Journal of Sport Finance, Fitness Information Technology, vol. 3(2), pages 119-126, May.
  3. Brad R. Humphreys, 2002. "Alternative Measures of Competitive Balance in Sports Leagues," Journal of Sports Economics, , vol. 3(2), pages 133-148, May.
  4. Vrooman, John, 2000. "The Economics of American Sports Leagues," Scottish Journal of Political Economy, Scottish Economic Society, vol. 47(4), pages 364-98, September.
  5. KÉSENNE, Stefan, . "The impact of salary caps in professional team sports," Working Papers 1999026, University of Antwerp, Faculty of Applied Economics.
  6. Helmut Dietl & Markus Lang & Alexander Rathke, 2007. "The Effect of Salary Caps in Professional Team Sports on Social Welfare," Working Papers 0016, University of Zurich, Center for Research in Sports Administration (CRSA).
  7. KÉSENNE, Stefan, . "Revenue sharing and competitive balance in professional team sports," Working Papers 1999019, University of Antwerp, Faculty of Applied Economics.
  8. Helmut M. Dietl & Markus Lang, 2008. "The Effect Of Gate Revenue Sharing On Social Welfare," Contemporary Economic Policy, Western Economic Association International, vol. 26(3), pages 448-459, 07.
  9. Thomas Hoehn & Stefan Szymanski, 1999. "The Americanization of European football," Economic Policy, CEPR & CES & MSH, vol. 14(28), pages 203-240, 04.
  10. Daniel R. Marburger, 1997. "Gate Revenue Sharing And Luxury Taxes In Professional Sports," Contemporary Economic Policy, Western Economic Association International, vol. 15(2), pages 114-123, 04.
  11. Babatunde Buraimo & Rob Simmons, 2008. "Competitive Balance and Attendance in Major League Baseball: An Empirical Test of the Uncertainty of Outcome Hypothesis," International Journal of Sport Finance, Fitness Information Technology, vol. 3(3), pages 146-155, August.
  12. Sloane, Peter J, 1971. "The Economics of Professional Football: The Football Club as a Utility Maximiser," Scottish Journal of Political Economy, Scottish Economic Society, vol. 18(2), pages 121-46, June.
  13. Sonia Falconieri & Frédéric Palomino & József Sákovics, 2004. "Collective Versus Individual Sale of Television Rights in League Sports," Journal of the European Economic Association, MIT Press, vol. 2(5), pages 833-862, 09.
  14. Rodney Fort & James Quirk, 1995. "Cross-subsidization, Incentives, and Outcomes in Professional Team Sports Leagues," Journal of Economic Literature, American Economic Association, vol. 33(3), pages 1265-1299, September.
  15. Stefan Szymanski, 2003. "The Economic Design of Sporting Contests," Journal of Economic Literature, American Economic Association, vol. 41(4), pages 1137-1187, December.
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