Paul L. Caron

Wednesday, July 28, 2021

The Effect Of Taxes On Where Superstars Work

David R. Agrawal (Kentucky) & Kenneth Tester (Kentucky), The Effect of Taxes on Where Superstars Work:

Prior studies show that taxes matter for the residential locations of high-income earners. But, states raise a significant share of income taxes from nonresidents, especially superstars. Using superstar athletes and variation in state tax rates, we provide causal evidence on the effect of the net-of-participation tax rate on the location of labor supply. 

The elasticity of working in a state is 0.32, and consistent with superstar phenomenon, increases the earnings distribution. Our results suggest a novel margin of labor supply responses for top-earners: the spatial relocation of labor supply by nonresidents.

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