If President Barack Obama or candidate Mitt Romney have any doubts about public economic policy, what to do about tax cuts, for instance, they should call on Harvard economist Raj Chetty, just named one of the 2012 Fellows by the prestigious MacArthur Foundation. Chetty has questioned existing theories on public finance issues such as how dividend tax cuts affect corporate behavior or how unemployment insurance affects job-seeking behavior.
Chetty's studies are informing the design of effective government policy, according to the MacArthur Foundation. More recently, Chetty, along with colleagues, designed empirical tests to gauge the impact of sales taxes on demand. In a study at a large supermarket chain, the researchers demonstrated that, although most customers were well-informed about the retail sales tax rates, consumers purchased less of a product when posted prices indicated the associated sales tax than when the tax was simply added to the product’s base price at checkout.
“This observation, suggesting that the way in which a tax is perceived can have as much or more impact on consumer decision making as the tax itself, is an important contribution to the emerging field of behavioral public finance,” the press release said.
Using large administrative databases drawn from tax and Social Security records in the United States and Europe, Chetty is exploring a range of other questions, such as the effect of tax policy on how much people work, the extent to which tax deductions for retirement savings stimulate individual savings and key aspects of early childhood education. In a study on teacher quality using these data sets and information gleaned from school district databases, Chetty and colleagues found that, adjusting for other factors, students who by chance were assigned to talented teachers in elementary school had significantly higher incomes as adults and better future life outcomes.
Chetty got his B.A. and Ph.D. from Harvard University. Before joining Harvard faculty, he was teaching at the University of California at Berkeley.
At Harvard, he is not only a professor of economics but also director of the Lab for Economic Applications and Policy. His articles have appeared in such publications as the Quarterly Journal of Economics, American Economic Review, Annual Review of Economics, and Econometrica, among others.