The Effect of Taxes on Where Superstars Work

57 Pages Posted: 19 Nov 2020 Last revised: 15 Nov 2021

See all articles by David R. Agrawal

David R. Agrawal

University of Kentucky - James W. Martin School of Public Policy and Administration; University of Kentucky - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute)

Kenneth Tester

University of Exeter - Tax Administration Research Centre (TARC)

Date Written: October 24, 2020

Abstract

Prior studies show that taxes matter for the residential locations of high-income earners. But, states raise a significant share of revenue from nonresidents, especially superstars. Using superstar athletes and variation in state tax rates, we provide causal evidence on the effect of the net-of-participation tax rate on the location of labor supply. State taxes induce high-income earners to shift employment contracts to low-tax states. The elasticity of working in a state is 0.32, and consistent with superstar phenomenon, increases with earnings. Our results suggest a novel margin of mobility responses for top-earners: the spatial relocation of labor supply by nonresidents.

Keywords: superstars, taxing the rich, avoidance, mobility, high-frequency labor supply

JEL Classification: J22, J61, H26, H73, R50

Suggested Citation

Agrawal, David R. and Tester, Kenneth, The Effect of Taxes on Where Superstars Work (October 24, 2020). Available at SSRN: https://ssrn.com/abstract=3718441 or http://dx.doi.org/10.2139/ssrn.3718441

David R. Agrawal (Contact Author)

University of Kentucky - James W. Martin School of Public Policy and Administration ( email )

433 Patterson Office Tower
Lexington, KY 40506-0027
United States
859-257-8608 (Phone)

HOME PAGE: http://www.uky.edu/~drag222/

University of Kentucky - Department of Economics ( email )

Lexington, KY 40506
United States

HOME PAGE: http://www.uky.edu/~drag222/

CESifo (Center for Economic Studies and Ifo Institute) ( email )

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Munich, DE-81679
Germany

HOME PAGE: http://www.uky.edu/~drag222/

Kenneth Tester

University of Exeter - Tax Administration Research Centre (TARC) ( email )

Northcote House
The Queen's Drive
Exeter, Devon
United Kingdom

HOME PAGE: http://kennethtester.com

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