NBA teams in states with low income tax rates sign higher-quality players than teams in high-tax states, according to an article published in the Journal of Sports Economics.The article, written by Cornell economics Ph.D. candidate Nolan Kopkin, looks at the affect of state taxes on NBA player movement.
Kopkin concludes that “free agents that sign into relatively lower income tax quartiles” have better stats, and are more likely to be All-Stars and high draft picks.
The theory works for the inverse as well — teams in states with high tax rates sign less-quality free agents on average.
Kopkin assessed the relative quality of NBA free agents from 2001-2008, and then tracked where each of them signed. He also looked at the affect of a state lower or raising its income taxes, as well as a whether or not teams in high-tax states overcompensate their players to compete financially.
Even after controlling for “observable characteristics of teams, cities, and states,” Kopkin concludes that lower taxes lead to better free agents, and high taxes lead to worse ones.
The Toronto Raptors, New York Knicks, Cleveland Cavaliers, Washington Wizards, and the California teams (Lakers, Clippers, Kings, Warriors) have the league’s highest tax rates.
The Memphis Grizzlies, Miami Heat, Orlando Magic and the Texas teams (Rockets, Mavericks, Spurs) have the league’s lowest tax rates.