Soccer, Marginal Tax Rates and Game Theory

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Republicans have called Democrats “socialist” for wanting to raise the top marginal tax rate. Imagine the epithet they would hurl if a new tax code threatened professional sports.

The Spanish government has proposed reforming the “Beckham law”, named after the British star, that taxes foreign soccer players at a lower rate than domestic athletes. La Liga and its players claim a repeal of the law would cause foreign stars to leave the Spanish league. The players have even threatened to strike. The English Premier league also flipped a lip when the UK government proposed a new tax plan earlier this year. Ironically, English fans feared the tax rate would drive Christiano Ronaldo from Manchester United to Real Madrid. Ronaldo is now on Real Madrid and may see his tax rate increase anyway.

Now this tax problem could be easily solved if all European governments decided to cooperate a set a standard tax rate for soccer players across countries and leagues. But of course, this situation is an example of the prisoner’s dilemma. There is no supra-national organization that can force European countries to set a standard tax rate. So instead we are left with a world in which tax policy can affect the outcome of the Champions League

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