ABSTRACT
Income taxation affects individuals’ incentives to work, save, and take risks. These behavioural responses to taxation is key to evaluating efficiency cost of taxation. Especially, the response of rich individuals to taxation is important because of their impact on the tax revenue and on the economy. In this paper, I analyse the response of Major League Baseball players to the increase in the top tax rate due to the American Taxpayer Relief Act of 2012. Using difference-in-differences estimation applied to the players with different years of free agent contracts, I do not find any negative effect of the tax increase on the players’ performance.
Disclosure statement
No potential conflict of interest was reported by the author(s).
Notes
1 For a survey of various behavioural responses to taxation and their effects on economic efficiency, see Hausman (Citation1985), Keane (Citation2011), and Saez, Slemrod, and Giertz (Citation2012).
2 There are also papers that analyse the effect of taxation on sports players, e.g. Alm et al. (Citation2012) on MLB players, Kopkin (Citation2012) on NBA players, and Kleven, Landais, and Saez (Citation2013) on European football markets.
3 As Bush tax cuts were expired, the reduced rates were extended for two years in 2010 and ATRA of 2012 made most of the lower rates from Bush tax cuts permanent while the top rate returned to pre-Bush rate.
4 The American Taxpayer Relief Act of 2012 passed the House on 1 August 2012, passed the Senate on 1 January 2013, and was signed into law by President Obama on 2 January 2013.
7 To make the control group as comparable as the treatment group, I only include in the control group the players who began their free agent contract in 2011 or later.