Baseball salaries and income taxes: The ‘home- field advantage’ of income taxes on free- agent salaries

In this article, the authors examine the impact on the salaries of free agents in Major League Baseball (MLB) of differences in state and local individual income taxes between major league cities, in an attempt to see if income taxes affect player sal-aries. This basic specification suggests that each percentage point of an income tax raises free agent salaries by $21,000 to $24,000; other estimates indicate even larger impacts. These findings suggest that the existence of this additional salary demand means that low-tax cities (e.g., Florida, Texas, and Washington) have a ‘‘home field advantage’ ’ in the baseball free agent market. Keywords tax incidence, free agents, income tax, luxury tax ‘‘We have no state taxes, and it’s always 80 degrees.’’ Doc Rivers, then-coach of Florida’s OrlandoMagic, yelling from the sidelines to prospec-tive free agents on opposing teams