Equitable Growth grantee Gabriel Zucman awarded the 2023 John Bates Clark Medal
Earlier this month, associate professor of public policy and economics Gabriel Zucman at the University of California, Berkeley—and a Washington Center for Equitable Growth 2018 grantee—won the 2023 John Bates Clark Medal. The prestigious award is given annually by the American Economic Association to an American economist under the age of 40 who is judged to have made the most significant contribution to economic thought and knowledge. In particular, Zucman was recognized for his contributions to the field of public economics, being one of the world’s leading experts on tax evasion, and for his research on measuring and explaining the rise in economic inequality.
Zucman’s exceptional research on tax evasion—including as an Equitable Growth grantee—and on the unequal distribution of income and wealth in the United States have been indispensable in furthering our nation’s understanding of economic inequality and growth and what to do about it. As part of his contributions to public economics, he has helped organize Economics for Inclusive Prosperity, which is a network of academic economists seeking to broaden the scope of economic research, including research related to economic inequality.
Having been an active member of our network since its founding, we wish to celebrate Zucman’s momentous achievement by highlighting some of his scholarship with Equitable Growth throughout the years and how his evidence-based microeconomic research resulted in key public policy decisions over the past several years.
Zucman’s research as an Equitable Growth grantee generated the working paper “Tax Evasion at the Top of the Income Distribution: Theory and Evidence,” which investigated two main questions: What kind of tax evasion tactics do high-income Americans use? And how much taxes do high-income Americans evade?
Using a unique combination of micro-data from the IRS, Zucman and his co-authors find that random audits tend to miss certain kinds of concealed assets. Offshore tax evasion, for example, is one prominent tactic used by high-income Americans, with about 1 in 15 people in the top 0.01 percent of the U.S. income distribution appearing on lists of taxpayers disclosing offshore accounts following an ambitious crackdown in starting in 2008. This is heavily contrasted with those in the bottom 99 percent of the income distribution, with less than 1 in 1,000 of those individuals appearing on the same lists.
Then there are so-called pass-through businesses (partnerships and S-corporations under the U.S. tax code), which do not remit their own income taxes, but rather “passes through” this income to their owners for tax purposes. Pass-through business income is highly concentrated at the top of the income distribution. Partnerships in particular can be highly complex because the owners of partnerships can be other pass-through businesses. Zucman and his co-authors find when an auditor encounters pass-through income during an individual random audit, they only proceed to audit the pass-through businesses themselves in less than 5 percent of cases.
Accounting for these kinds of sophisticated tax evasion approximately doubles the tax gap for the top 0.1 percent of the U.S. income distribution, compared to conventional estimates. Additionally, accounting for underreported income increases estimates of the share of all income received by the top 1 percent by about 1.5 percentage points.
The consequences of tax evasion are significant. Zucman and his co-authors conservatively estimate that increased enforcement to close the income tax gap for the top 1 percent could yield $175 billion in currently uncollected income tax revenue per year. Zucman’s groundbreaking research was cited by the U.S. Department of the Treasury in support of President’s Biden recent investment of $80 billion in the IRS to close this compliance gap and by 21 members of the U.S. Senate in support of that investment, which became law in 2022.
Zucman has pioneered research measuring and explaining the trend of rising inequality. In a 2016 Equitable Growth working paper, along with co-authors Thomas Piketty, professor of Economics at the Paris School of Economics, and Emmanuel Saez, professor of Economics, University of California, Berkeley, Zucman developed distributional national accounts that disaggregate national income. These accounts allowed the authors to compute growth rates for each quantile of the income distribution consistent with macroeconomic growth, and enabled them to estimate the distribution of both pre-tax and post-tax income in order to provide a comprehensive view of how government redistribution affects inequality.
Details of their findings in the United States also can be read here. Their methodological innovations have contributed significantly to the proliferation of research and policy interest on the effects of economic inequality and how to measure it. His work in this arena is often cited in the seminal efforts by the U.S. Department of Commerce’s Bureau of Economic Analysis to measure economic inequality—research that contributed to the BEA’s decision to create a new prototype data series on the distribution of growth in personal income, providing valuable intelligence on who is benefiting from economic growth in the United States. In December 2022, the agency released data on the distribution of economic growth for 2020 and 2021.
Zucman continues to advance public scholarship in this arena by maintaining the distributional national accounts micro-data on his website. These micro-files make it possible for researchers, journalists, policymakers, and any interested user to compute a wide array of distributional statistics—income, wealth, taxes paid and transfers received by age, gender, marital status, and other measures—and to simulate policy discussions about the distributional consequences of tax and transfer reforms in the United States.
The Washington Center for Equitable Growth congratulates Gabriel Zucman for winning the Clark Medal, and looks forward to his research for years to come documenting why broad-based economic growth results in stronger and more stable growth.