Clark Medal, which is often called the ‘Baby Nobel,’ for
‘His work extends basic price theory by incorporating
behavioral and psychological aspects of economic behavior;
reconciles results from different branches of economics,
whether between structural and reduced form economists,
or among previously inconsistent estimates of key parame-
ters such as labor supply elasticities; and employs data that
are uniquely suited to answer otherwise unanswerable
‘He has,’ the AEA noted, ‘established himself in a few short
years as arguably the best applied micro-economist of his
What sets Chetty apart from many of his colleagues is that
he comes up with creative ways of using data to understand
how the economy works, many academics, including his
Harvard mentor the legendary Martin Feldstein, have said.
“He conducts his experiments in the real time and in the
real world,” says Feldstein.
Henry Aaron, an economist at the Brookings Institution,
a Washington, DC think tank, told Marketplace.org that
Chetty has a unique ability to look at data sets and ask the
‘And when you marry those two you get results to which
people pay attention,’ Aaron explained, ‘and I think that’s
been the case with Raj Chetty.’
Just as he was beginning to teach at Berkeley, Chetty start-
ed catching media attention.
‘At 28, economist Raj Chetty aligns theories with real-world facts, leading him to surprising conclusions on taxes,
investing, and welfare,’ wrote The American, the online
magazine of the American Enterprise Institute, under the
title The Experimenter.
‘He combines a clean understanding of economic theory
with a great interest in data and the real world,’ James
Poterba, chairman of MIT’s economics department, told The
For 25 years, economists have debated how US corporations would react if there is a drastic change in rates, and
when the dividend tax rate was cut from a high of 35 percent
to 15 percent in 2003 Chetty and his collaborator, Emmanuel Saez, were the first to analyze the data and look for
changes, noted Poterba.
In their study, Dividend Taxes and Corporate Behavior:
Evidence from the 2003 Dividend Tax Cut, published in The
Quarterly Journal of Economics in 2005, Chetty and Saez
found not only that more companies paid out dividends
after rates were lowered, but also that they were likelier to
pay dividends if top executives had substantial sharehold-ings in the firm.
The study found that efficiency and productivity suffered
when the dividend tax rate is too high — or when top executives own too few shares.
Those factors can drive a wedge between the interests of
CEOs and shareholders, encouraging managements to reinvest earnings in lower-priority projects or frivolous purchases, like a nonessential corporate jet or a plush office, The
When rates were higher, Chetty explained, executives ‘had
a stronger incentive to keep that money within the firm and
get that private jet, instead of paying it out in the form… of
COURTES Y: RAJ CHET T Y
President Barack Obama mentioned the findings of Raj Chetty, left, and John Friedman’s report titled ‘The Long-Term
Impacts of Teachers: Teacher Value-Added and Student Outcomes in Adulthood’ in a State of the Union address.
The study was in response to the 2003 dividend tax cut by
the Bush administration, which increased dividend payouts
by companies by about 20 percent.
“My research and findings are not swayed by political con-
siderations,” Chetty told India Abroad. “For me, the emp-
irical data is the starting point. Some of my conclusions may
please the Republicans and some, liberal Democrats and
Many of his research projects have similarly challenged
the prevailing wisdom.
Among Chetty’s many admirers is the 2001 Nobel Lau-
reate, George Akerlof who has described Chetty’s work as
‘He had a new way of looking at the problems of the unem-
ployed. Raj emphasized that they find it very difficult to
meet their prior commitments,’ he told The American. ‘For
example, they must pay their rent or their mortgage, and
these commitments very much add to the difficulties of
being unemployed. Economists were just not thinking of
that until Raj came up with it. This is a very big innovation
in the theory of unemployment.’
In How Does Your Kindergarten Classroom Affect Your
Earnings? Evidence from Project STAR, Chetty and col-
leagues examined the long-run effects of the Tennessee
STAR experiment, which randomized students into class-
rooms with few students or the conventional number.
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