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

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

No 23, Working Papers from University of Zurich, Center for Research in Sports Administration (CRSA)

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)
Pages: 20 pages
Date: 2008-05, Revised 2009-07
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http://repec.business.uzh.ch/RePEc/rsd/CRSA_WPS/23_CRSA_full.pdf (application/pdf)

Related works:
Journal Article: The Effect of Luxury Taxes on Competitive Balance, Club Profits, and Social Welfare in Sports Leagues (2010)
Working Paper: The Effect of Luxury Taxes on Competitive Balance, Club Profits, and Social Welfare in Sports Leagues (2009)
Working Paper: The Effect of Luxury Taxes on Competitive Balance, Club Profits, and Social Welfare in Sports Leagues (2009)
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