Question

lesson 1.3 discussion
baseball’s luxury tax

• rich teams pay a tax to the league. the revenue helps fund poor teams.
• poor teams say the tax isn’t big enough to make much of a difference.

discussion question: imagine the league enacted a harsher tax in the 2002 season. any money spent above $100 million is taxed at a 90% rate. poor teams receive the tax funds.
a) how would the distribution of team payrolls change? comment on shape, center, and spread.
b) in your opinion, would this new system be better for the sport? why or why not?

Explanation:

Step1: Analyze shape change

The harsh tax would discourage rich teams from high - spending. The distribution would likely become less right - skewed as fewer teams would have extremely high payrolls.

Step2: Analyze center change

The center (e.g., mean or median) of the payroll distribution would likely decrease. Rich teams would cut spending to avoid the high tax rate, pulling the overall average and median down.

Step3: Analyze spread change

The spread (e.g., range or standard deviation) would likely decrease. With rich teams reducing payrolls, the difference between the highest and lowest payrolls would be smaller.

Step4: Evaluate new system for the sport

If the new system reduces payroll inequality, it could lead to more competitive balance as poor teams have more resources. This could increase fan interest as more teams have a chance to be competitive. However, it could also limit the ability of rich teams to build super - star rosters, potentially reducing overall star power in the league.

Answer:

a) The shape would likely become less right - skewed, the center would decrease, and the spread would decrease.
b) It could be better as it may increase competitive balance, but it could also reduce star power in the league.