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Has the Luxury Tax Improved Competitive Balance in the NBA?

Has the Luxury Tax Improved Competitive Balance in the NBA? Atl Econ J https://doi.org/10.1007/s11293-023-09768-7 ANTHOLOGY Has the Luxury Tax Improved Competitive Balance in the NBA? 1 1 Imran M. Ladha  · Paul M. Sommers Accepted: 7 March 2023 © International Atlantic Economic Society 2023 JEL L83 Salary caps in sports leagues were designed to improve competitive balance. The sal- ary cap that the National Basketball Association (NBA) instituted before the 1984- 85 season was regarded as soft given it allowed team payrolls to exceed the official cap when teams intended to re-sign their own free agents. Staudohar (Competition Policy in Professional Sports: Europe after the Bosman Case, 1999) observed that the average NBA payroll was larger than the salary cap in almost every year of its existence. Totty and Owens (Journal for Economic Educators, 2011) concluded that salary caps actually decreased competitive balance in the NBA. In 2001-2002, the NBA imposed a luxury tax, a surcharge on teams whose pay- roll was above a specified luxury tax threshold (typically set above the salary cap). Before 2012-2013, teams paid a $1 tax for every $1 by which they exceeded the luxury tax level threshold. Now, teams pay a progressively higher tax rate for every $5 million by which they exceed the luxury tax threshold. One might wonder http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Atlantic Economic Journal Springer Journals

Has the Luxury Tax Improved Competitive Balance in the NBA?

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Publisher
Springer Journals
Copyright
Copyright © International Atlantic Economic Society 2023
ISSN
0197-4254
eISSN
1573-9678
DOI
10.1007/s11293-023-09768-7
Publisher site
See Article on Publisher Site

Abstract

Atl Econ J https://doi.org/10.1007/s11293-023-09768-7 ANTHOLOGY Has the Luxury Tax Improved Competitive Balance in the NBA? 1 1 Imran M. Ladha  · Paul M. Sommers Accepted: 7 March 2023 © International Atlantic Economic Society 2023 JEL L83 Salary caps in sports leagues were designed to improve competitive balance. The sal- ary cap that the National Basketball Association (NBA) instituted before the 1984- 85 season was regarded as soft given it allowed team payrolls to exceed the official cap when teams intended to re-sign their own free agents. Staudohar (Competition Policy in Professional Sports: Europe after the Bosman Case, 1999) observed that the average NBA payroll was larger than the salary cap in almost every year of its existence. Totty and Owens (Journal for Economic Educators, 2011) concluded that salary caps actually decreased competitive balance in the NBA. In 2001-2002, the NBA imposed a luxury tax, a surcharge on teams whose pay- roll was above a specified luxury tax threshold (typically set above the salary cap). Before 2012-2013, teams paid a $1 tax for every $1 by which they exceeded the luxury tax level threshold. Now, teams pay a progressively higher tax rate for every $5 million by which they exceed the luxury tax threshold. One might wonder

Journal

Atlantic Economic Journal – Springer Journals

Published: Mar 1, 2023

Keywords: L83

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