Gabriel Zucman, Clark Medalist 2023
American Economic Association Honors and Awards Committee
Gabriel Zucman has made fundamental contributions to the field of public economics. He is recognized as one of the world's leading experts on tax evasion, both at the household and at the corporate level, and a major contributor to the literature on measuring and explaining the rise in economic inequality. This research provides key insights that inform policy debates on the practical design of tax systems around the world.
Zucman's research provides some of the best evidence on the importance of tax evasion, pushing the economics profession to appreciate that this phenomenon is more important than previously thought. "Tax Evasion and Inequality," (American Economic Review, 2019, with Annette Alstadsæter and Niels Johannesen) uses new micro-data from recent leaks from offshore financial entities (The "Panama Papers" and HSBC "Swiss Leaks") and tax amnesties, merged with administrative income and wealth records in Norway, Sweden, and Denmark, to estimate the impact of tax evasion on measured wealth inequality in these Scandinavian countries. Overall, top wealth shares increase substantially when offshore wealth is included, because those at the top of the distribution engage much more actively in evasion. The authors estimate that the richest 0.01 percent of households evade about 25 percent of their taxes, in contrast with conventional audits that suggest evasion rates fall below 5 percent across the wealth distribution.
"The Missing Profits of Nations" (Review of Economics Studies, forthcoming, with Tørsløv and Wier) estimates the amount of international profit shifting by multinational companies. The insight is to compare the ratio of corporate profits to the wage bill for foreign affiliates versus domestic firms. In tax havens, foreign affiliates are 8 to 16 times more profitable than domestic firms, while in non-tax havens the ratio is less than one. Attributing the excess to profit shifting, Zucman and coauthors estimate that 36 percent of multinational profits globally are shifted to tax havens. US multinationals are estimated to shift half of their profits compared to about a quarter of profits for multinationals headquartered in other countries.
Zucman's second major area of contribution is his work on inequality and is best summarized by his recent paper with Emmanuel Saez, "The Rise of Income and Wealth Inequality in America: Evidence from Distributional Macroeconomic Accounts" (Journal of Economic Perspectives, 2020). Earlier work by Thomas Piketty and Emmanuel Saez and others laid the foundation for using administrative tax data to study top income inequality. However, the fraction of national income captured in the individual income tax data was only 60 percent in 2018; the gap is even larger in survey data. Instead, "Distributional National Accounts: Methods and Estimates for the United States" with Thomas Piketty and Emmanuel Saez (Quarterly Journal of Economics, 2018) pioneers an approach to allocate essentially all national income to percentiles of the income distribution, including capital income, taxes, welfare benefits, in-kind transfers such as Medicare and Medicaid, public education, and employee fringe benefits, providing a more accurate picture of pre- and post-tax inequality.
Key findings include the fact that pre-tax national income for the bottom 50 percentiles grew by a cumulative total of just 1 percent between 1980 and 2014, after growing 102 percent between 1946 and 1980. In contrast, growth at the top was reversed: the top 1 percent of national income percentile saw growth of 204 percent between 1980 and 2014 versus 47 percent between 1946 and 1980. Government taxes and transfers partially change this picture, with the bottom 50 percentiles of after-tax national income growing by 21 percent between 1980 and 2014, the bottom 20 percentiles growing by a cumulative 4 percent, and the top 1 percentile after-tax growing by 194 percent. Zucman and coauthors have extended their methodology to create Distributional Financial Accounts for household wealth. Early contributions include "Capital is Back: Wealth-Income Ratios in Rich Countries 1700-2010" (Quarterly Journal of Economics, 2014, with Thomas Piketty) and "Wealth Inequality in the United States since 1913: Evidence from Capitalized Income Tax Data" (Quarterly Journal of Economics, 2016, with Emmanuel Saez).
The authors are clear that their quantitative findings are provisional and that the Distributional National Accounts should be viewed as an open-source "prototype" to be improved upon in future research, and indeed there is a growing literature exploring the consequences of alternative assumptions in allocating income and wealth. The authors own estimates have evolved as additional data has come online and as methodological refinements to the estimates have been suggested. Zucman maintains a website documenting the evolution of the national accounts, which also provides the code used to produce the estimates. These estimates are also provided to the public in a more easily digestible format via the World Inequality Database.
Through his entrepreneurial and creative pursuit of new data and methods for economic measurement, Gabriel Zucman has uncovered a range of fundamentally important facts quantifying the importance of tax evasion and measuring the rise of top income and wealth inequality. The 2023 John Bates Clark Medal is therefore awarded to Gabriel Zucman in recognition of these impressive achievements.