Helmut Dietl () (Institute for Strategy and Business Economics, University of Zurich) Markus Lang () (Institute for Strategy and Business Economics, University of Zurich) Stephan Werner () (Institute for Strategy and Business Economics, University of Zurich)
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This paper provides a game-theoretic model of a professional sports league and analyzes the effect of luxury taxes on competitive balance, club profits and social welfare. We show that a luxury tax increases aggregate salary payments in the league as well as 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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Paper provided by International Association of Sports Economists in its series Working Papers with number
0823.