The impact of the luxury tax on competitive balance in Major League Baseball
There has been much discussion recently in the world of professional sports about competitive balance. As more is focused on the growing disparity between large market and small market teams, one must ask whether the luxury tax, as implemented by Major League Baseball, has had its intended effect. This paper adds to the literature on competitive balance by developing measures to quantify competitiveness at the individual team-level. We estimate a model analyzing the impact of the luxury tax on competitive balance. The results show that the luxury tax is beginning to have the intended impact on competitive balance.
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