Global Tax Competition, NHL Lockout Edition
My Twitter followers know that I’m a huge hockey fan and that I’m really upset that we have now entered the third work stoppage under NHL Commissioner Gary Bettman’s tenure. But the current lockout, like previous lockouts, has paved the way for the temporary flight of NHL talent to European countries so they can continue earning a paycheck and staying in game shape. That necessarily paves the way for a discussion of comparative politics and economics. Take, for example, the case of Swedish-born Nashville Predators forward Patric Hornqvist, who was going to sign with his former (pre-NHL career) team Djurgarden, even though they’re no longer in the Swedish Elite League:
Following in Roman Josi’s footsteps, the next Nashville Predator is heading overseas during NHL Lockout 2012, as Patric Hornqvist will reportedly play with Djurgarden, the team he played for before coming to North America. Djurgarden is currently in Sweden’s HockeyAllsvenskan, having been relegated last spring from the Swedish Elite League after a 35-year run.
But as my On the Forecheck colleague Dirk Hoag scoops today, even in hockey incentives matter (emphasis added):
This should have been a triumphant return for Hornqvist to his old club, a welcome boost for a team which had recently been relegated to Sweden’s second division after a 35-year run in the Elitserien. Unfortunately, that tumble from the top league means that Djurgarden doesn’t have the financial resources that it once did. So instead of suiting up in the HockeyAllsvenskan, Hornqvist is taking his talents on the road.
I contacted Adam Eriksson of Expressen.se for details, and here is what he had to say on the matter:
There are two reasons why he won’t play for Djurgården. First of all, the insurance for Hörnqvist is quite expensive, and as you probably know the club was relegated to the second tier for this season, so they have to cut back on all expenses. They say that if the lockout is longer than they expect, they might reconsider bringing Hörnqvist in.
Secondly, Hörnqvist and the club would have to pay very high amounts of taxes after the first 30 days of his contract, and neither party is willing to do that at the moment. This might also change in the future, if they can bring Hörnqvist in on a short-time deal with a specified ending date, for example if the NHL and the NHLPA come to an agreement on a start date for the league.
As of now, the most probable scenario is that he plays in the second or maybe first tier league in Switzerland (some sources say that he has already signed with a team called Lausanne), and if the entire NHL season is cancelled, he and Djurgården will talk again.
All this is to say that public policy has an impact on where people and companies want to do business. This phenomenon is called tax competition; jurisdictions competitively lower tax rates in an attempt to broaden their bases, to attract new residents and new companies. Conversely, those jurisdictions that fail to keep tax rates low price themselves out as options to potential relocators.
Check out my former Cato Institute colleague Dan Mitchell’s work in this area to learn more.
Photo by Resolute (Own work) [CC-BY-SA-3.0], via Wikimedia Commons