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The impact of the luxury tax on competitive balance in Major League Baseball


  • Olugbenga Ajilore

    () (University of Toledo)

  • Joshua Hendrickson

    () (Wayne State University of Toledo)


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.

Suggested Citation

  • Olugbenga Ajilore & Joshua Hendrickson, 2005. "The impact of the luxury tax on competitive balance in Major League Baseball," IASE Conference Papers 0517, International Association of Sports Economists.
  • Handle: RePEc:spe:cpaper:0517

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    File Function: Paper presented at the 7th Annual IASE Conference in Ottawa, Ontario, June 2005
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    Cited by:

    1. Helmut M. Dietl & Markus Lang & Stephan Werner, 2010. "The Effect of Luxury Taxes on Competitive Balance, Club Profits, and Social Welfare in Sports Leagues," International Journal of Sport Finance, Fitness Information Technology, vol. 5(1), pages 41-51, February.

    More about this item


    sports economics; Major League Baseball; Luxury Tax;

    JEL classification:

    • L83 - Industrial Organization - - Industry Studies: Services - - - Sports; Gambling; Restaurants; Recreation; Tourism


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