THE INCOME TAX RESPONSIVENESS OF THE RICH: EVIDENCE FROM FREE AGENT MAJOR LEAGUE BASEBALL ALL-STARS

"This paper examines the responsiveness of the rich to state income taxes. We use Major League Baseball free agents who were named All-Stars at some point in their career and who signed with a U.S. team for the 1991 through 2002 seasons. This data set overcomes some of the previous difficulties encountered in similar studies but also has limitations representing the general rich population. We find evidence that the wages of this subset of players do adjust to offset the burden of state income taxes, specifically a 1% decrease in net-of-tax rate leads to a 3.3% increase in salary. "("JEL "H20, H24, H71, R23) Copyright 2007 Western Economic Association International.