Abstract
Prior studies show that taxes matter for the residential locations of high-income earners. But, states raise a significant share of revenue 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. State taxes induce high-income earners to shift employment contracts to low-tax states. The elasticity of working in a state is 0.32, and consistent with superstar phenomenon, increases with earnings. Our results suggest a novel margin of mobility responses for top-earners: the spatial relocation of labor supply by nonresidents.
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