What drives inequality and what should we do about it? This question is the motivator behind much of Princeton Professor Owen Zidar’s research and scholarship. In search of the answer, Zidar often finds himself buried in a place many of us try to avoid: The U.S. tax code.
As the author of some of the most-cited tax policy papers in recent years, Zidar has studied how the top 1% earn their money, how quickly wealth inequality is growing, and how changes in the federal tax code over the last several decades have contributed to rising inequality and made it challenging to raise money for spending on infrastructure, education, healthcare, and research and development.
By emphasizing how businesses and regional disparities drive inequality, Zidar’s work also examines the equity and efficiency tradeoffs policymakers face at all levels of government. Zidar’s research has shown that only 35% of the economic benefits of state corporate-tax rate reductions go to workers, and that increased wages that result when companies earn high-value patents are concentrated among the highest-paid workers. Studying the $30 billion in tax incentives state and local governments spend each year to attract businesses, he presents evidence that casts doubt on whether the high costs of these incentives are justified.
In all of this work, Zidar hopes to highlight that income and opportunity vary substantially across the U.S., and to uncover a broader range of tools policymakers can use to address inequality at all levels of government.
“Working on economic policy questions and trying to help design more effective policies is both interesting and rewarding,” Zidar said. “It has the potential to improve outcomes for many.”
❱ The Tax Elasticity of Capital Gains and Revenue-Maximizing Rates
with Ole Agersnap
In a paper published in the American Economic Review: Insights, Zidar and Princeton PhD student Ole Agersnap show that one effective way to raise money would be an increase in the top capital gains tax rate. Though opponents of increasing taxes on investment earnings say doing so will ultimately reduce investment, Zidar and Agersnap argue that investors are less sensitive to these tax increases than many believe. Though the top rate on capital gains today is about 20% for most taxpayers, Zidar and Agersnap estimate that policymakers could increase the top rate to 40% before we begin to see reductions in revenue that result from investors changing their behavior.
Moving forward, Zidar is working on, among other things, exciting new work that explores how policy can help ensure people from disadvantaged backgrounds have better chances to start high-growth firms and succeed as entrepreneurs.
This Spring, Professor Zidar taught the third iteration of a new course offered by Princeton’s School for Public and International Affairs called “Topics in Policy Analysis: The Future of Fiscal Policy in the U.S.”
“Developing the material for this course and engaging with the students on current policy debates has been one of my favorite parts of teaching so far,” he said. “Some of my favorite moments are when students contact me after class to say they see things they learned in class in the real world, or that they decided to pursue a different career path because they found tax policy much more interesting than they initially expected.”
Obviously, Zidar is biased toward the study of tax policy. But he also thinks students considering a broad range of careers should consider economics as a concentration.
“Economics enhances analytical skills and teaches you how to think in a model-based way,” he said. “These lessons apply to a wide range of decisions and issues that students will face in the future. Applied econometrics and causal inference rank among the most important and valuable classes that someone can take in college.”
For supporting him on his own career path, Zidar thanks his advisors, Berkeley Professors Alan Auerbach and Pat Kline.
“Not only an expert in public finance and a widely trusted voice on many policy issues, Alan Auerbach is also kind and generous,” he said. Pat Kline, who Zidar says “combines careful empirical work, frontier econometrics, and applied theory to help us evaluate place-based policies” is also “an exceptional advisor who is brilliant, kind, and funny.”
When he isn’t teaching or sifting through tax data, you can often find Professor Zidar running along Lake Carnegie or hiking the Institute Woods trails with his wife. To learn more about Zidar’s research, visit his personal website.