Income Taxes and Team Performance: Do They Matter?

37 Pages Posted: 5 Apr 2017 Last revised: 13 May 2017

Erik Hembre

University of Illinois at Chicago - Department of Economics

Date Written: May 12, 2017

Abstract

State- and local-income tax rates differ across locations, giving low-tax teams a competitive advantage when bidding for players. I investigate the effect of income tax rates on professional team performance between 1977 and 2014 using data from professional baseball, basketball, football, and hockey in the United States. Regressing income tax rates on winning percentage, I find little evidence of income tax effects prior to 1994, but since then a ten percent increase in income taxes is associated with a three percent decline in winning percentage. A robustness check using within state variation in income taxes affirms this result. The income tax rate effect varies by league, with the largest effect in professional basketball, where teams in states without income tax win 4.5 more games each year relative to high-tax states. The income tax effect is smallest in major league baseball, which could be explained by greater team payroll disparity. Placebo tests using college team performance find no evidence of an income tax effect.

Keywords: Income Tax, Team Performance, Sports

JEL Classification: H20, Z20

Suggested Citation

Hembre, Erik, Income Taxes and Team Performance: Do They Matter? (May 12, 2017). Available at SSRN: https://ssrn.com/abstract=2946169 or http://dx.doi.org/10.2139/ssrn.2946169

Erik Hembre (Contact Author)

University of Illinois at Chicago - Department of Economics ( email )

725 University Hall (UH)
Chicago, IL 60607-7121
United States

HOME PAGE: http://www.ssc.wisc.edu/~hembre/

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