Taxation and Migration: Evidence from Major League Baseball

Growing inequality in the developed world has led to calls for increasing countries’ top marginal tax rates. Crucially, the optimal top marginal income tax rate depends on people’s tendency to migrate in response to changes in the tax rate. Changes in tax rates and and tax policy must take into account that increases in income tax rates may compel people to leave a country or state. This paper studies how differences in the top marginal tax rates affect the team and migrational choices of Major League Baseball players. Their elasticity of migration with respect to the net of tax rate can be considered an upper bound for the same elasticity in the entire labor supply, giving policy makers a worst-case scenario for migration following a tax increase. I find that a 10% increase in the state and city’s top marginal tax rate reduces a team’s wins in a season by about 2 (out of 162). If the elasticities estimated represented the behavior of all of those in the top tax bracket, an increase of ten percentage points in the average state’s top marginal tax rate would lead to a decrease of between 20 to 49 percent in the probability of a top income earner choosing to live in that state.