The Effect of Luxury Taxes on Competitive Balance, Club Profits, and Social Welfare in Sports Leagues

Helmut Max Dietl, Markus Lang () and Stephan Werner ()
Additional contact information
Stephan Werner: Institute for Strategy and Business Economics, University of Zurich

No 823, Working Papers from International Association of Sports Economists

Abstract: This paper provides a game-theoretic model of a professional sports league and analyzes the effect of luxury taxes on competitive balance, club profits and social welfare. We show that a luxury tax increases aggregate salary payments in the league as well as produces a more balanced league. Moreover, a higher tax rate increases the profits of large-market clubs, whereas the profits of small-market clubs only increase if the tax rate is not set inadequately high. Finally, we show that social welfare increases with a luxury tax.

Keywords: Sports League; Luxury Tax; Social Welfare; Competitive Balance (search for similar items in EconPapers)
JEL-codes: L11 L83 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-mic and nep-spo
Date: 2008-08, Revised 2009-06

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Related works:
Working Paper: The Effect of Luxury Taxes on Competitive Balance, Club Profits, and Social Welfare in Sports Leagues (2009)
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Persistent link: http://EconPapers.repec.org/RePEc:spe:wpaper:0823

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