The Effect of Taxes on Where Superstars Work
57 Pages Posted: 19 Nov 2020 Last revised: 15 Nov 2021
Date Written: October 24, 2020
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: Suggested Citation