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Baseball Salaries and Income Taxes: The "Home Field Advantage" of Income Taxes on Free Agent Salaries

Author

Listed:
  • James Alm

    (Department of Economics, Tulane University)

  • William H. Kaempfer

    (Department of Economics, University of Colorado at Boulder)

  • Edward Batte Sennoga

    (Kampala, Uganda)

Abstract

In this paper we examine the impact on the salaries of free agents in Major League Baseball of differences in state and local individual income taxes between major league cities, in an attempt to see if income taxes affect player salaries. Our basic specification suggests that each percentage point of an income tax raises free agent salaries by $21 to $24 thousand; other estimates indicate even larger impacts. Our findings suggest that the existence of this additional salary demand means that low tax cities (e.g., Florida, Texas, and Washington) have a "home field advantage" in the baseball free agent market.

Suggested Citation

  • James Alm & William H. Kaempfer & Edward Batte Sennoga, 2012. "Baseball Salaries and Income Taxes: The "Home Field Advantage" of Income Taxes on Free Agent Salaries," Working Papers 1209, Tulane University, Department of Economics.
    • Handle: RePEc:tul:wpaper:1209
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    References listed on IDEAS

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    1. Austan Goolsbee, 2000. "What Happens When You Tax the Rich? Evidence from Executive Compensation," Journal of Political Economy, University of Chicago Press, vol. 108(2), pages 352-378, April.
    2. Kenneth H. Brown & Lisa K. Jepsen, 2009. "The Impact of Team Revenues on MLB Salaries," Journal of Sports Economics, , vol. 10(2), pages 192-203, April.
    3. Hausman, Jerry, 2015. "Specification tests in econometrics," Applied Econometrics, Russian Presidential Academy of National Economy and Public Administration (RANEPA), vol. 38(2), pages 112-134.
    4. Rodney Fort, 2010. "Observation, Replication, and Measurement in Sports Economics," Journal of Sports Economics, , vol. 11(1), pages 3-16, February.
    5. Jon Bakija & Joel Slemrod, 2004. "Do the Rich Flee from High State Taxes? Evidence from Federal Estate Tax Returns," Department of Economics Working Papers 2004-12, Department of Economics, Williams College.
    6. Andrew Healy, 2008. "Do Firms Have Short Memories?," Journal of Sports Economics, , vol. 9(4), pages 407-424, August.
    7. John Charles Bradbury, 2007. "Does the Baseball Labor Market Properly Value Pitchers?," Journal of Sports Economics, , vol. 8(6), pages 616-632, December.
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    Cited by:

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    2. Anna Bykova & Dennis Coates, 2022. "Professional team sporting success: do economic and personal freedom provide competitive advantages?," Economics of Governance, Springer, vol. 23(3), pages 323-358, December.
    3. Helmut Dietl & Markus Lang & Cornel Nesseler, 2017. "The Impact of Government Subsidies in Professional Team Sports Leagues," Working Papers 366, University of Zurich, Department of Business Administration (IBW).

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    More about this item

    Keywords

    Tax incidence; free agents; income tax; luxury tax;
    All these keywords.

    JEL classification:

    • H22 - Public Economics - - Taxation, Subsidies, and Revenue - - - Incidence
    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
    • H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household
    • H73 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Interjurisdictional Differentials and Their Effects
    • L83 - Industrial Organization - - Industry Studies: Services - - - Sports; Gambling; Restaurants; Recreation; Tourism

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