Agglomeration, Tax Differentials, and the Mobility of Professional Athletes

Abstract

Interstate mobility may limit states' ability to choose their desired tax policies. The forces of agglomeration, however, may allow states more leeway in setting tax rates. Moreover, mobility and agglomeration effects are not uniform for all individuals within a state and may vary significantly across different groups. We explore this heterogeneity by examining the residential location decisions of professional racecar drivers and golfers, which have similar industry characteristics but different levels of agglomeration. Consistent with our theory, we show that tax preferences are a powerful determinant of golfer residential patterns, while agglomeration mitigates much of this effect among racecar drivers. These findings highlight the need to better understand how competition and agglomeration interact when formulating tax policy.

State Taxation of Nonresident Income and the Location of Work

“…If golfers disproportionately live in high-tax states, the employment-state tax rate would never matter. Some individual sports have large agglomeration effects on residence (Driessen and Sheffrin, 2017) which could limit spatial variation in taxes. However, the concentration of golfers' residences is in warm, sunny, and low-tax places such as Florida, Tennessee, and Texas, which implies the employment tax rate will be salient for golfers.…”