Sir Richard Blundell, CBE FBA, holds the David Ricardo Chair of Political Economy at University College London, where he was appointed Professor of Economics in 1984. The FI network member is also Director of the ESRC Centre for the Microeconomic Analysis of Public Policy at the Institute for Fiscal Studies IFS. He has been awarded honorary doctorates from the University of St.Gallen, Switzerland; the Norwegian School of Economics, NHH, Bergen, Norway; the University of Mannheim, Mannheim; and the Universita della Svizzera, Lugano, Switzerland. He was knighted in the 2014 Queen’s New Years Honours list for services to Economics and Social Science and was awarded the CBE in 2006. Blundell has been awarded several prizes for his research, including the 2016 Erwin Plein Nemmers Prize in Economics.  


Please describe your area of study and how it relates to current policy discussions surrounding inequality.

Economists are often accused of not worrying about inequality. This couldn’t be further from the truth. Over many years much of the research in empirical microeconomics has focussed on understanding the determinants and dynamics of poverty and inequality. As well as designing appropriate policy responses. This research has now moved centre stage.

In my research I study the way individuals and families make decisions over consumption, savings, and labor supply in the face of a changing economic environment. I do this through the empirical analysis of microeconomic data on individuals, families, and firms. This way I can relate the dynamics of hours of work, earnings, family income, consumption, and wealth together. Thereby linking the various dimensions of economic inequality: labor market earnings; family income; consumption; and wealth; and providing a comprehensive framework to study tax and welfare reform as it impacts on inequality.

One part of my research focuses specifically on the coping mechanisms individuals and families use to accommodate adverse labor market shocks. For example, I study how families adapt to unexpected periods of unemployment by a family member, and the consequential reduction in earnings. This work examines the role of family labor supply, and access to credit as well as the tax and welfare system. This is then used to assess whether the taxes, tax credits, and welfare-benefits could be better designed to address the adverse effects of inequality.

Two recent and related labor market trends highlight the importance of this research:

(i) falling earnings capacity for the low skilled, and

(ii) growing earnings inequality.

The falling earnings capacity at the bottom has brought increased pressure on the welfare system - witness the growth in expenditures on SSI, EITC, and on SNAP (Food Stamps) - focusing attention on poverty and whether the tax and welfare system redistributes in the most effective way. The concentration of earnings at the top has brought increased attention on the pay of the top 1%, focusing attention on the way we tax top incomes.

These labor market trends are key components driving inequality and they show the importance of getting the tax and welfare system right. But we cannot hope to design appropriate tax reform unless we understand how individuals, families and firms behave and how they react to changes in the tax and welfare system.


What areas in the study of inequality are most in need of new research?

There are many aspects of the study of inequality crying out for further research. Here are some that particularly interest me:

(i) Linking different measures of inequality:  There are many dimensions to economic inequality: earnings; family income; consumption; wealth, etc. These are typically examined by different fields in economics. For example, labor economists study earnings inequality, public finance economists study after tax family income inequality, with wealth and consumption inequality often left to macroeconomists! It is important that the links between the different measures are carefully researched and that this research uses methods that allow for sufficient heterogeneity. This places demands on not only researchers to look outside their own field but also on data providers, where links between tax data, earnings data, and wealth, at the individual level, are still very patchy.

(ii) Welfare, tax-credits and family incomes:  How does taxation impact family earnings? This is a very old question but now stretches much further than the simple study of labor supply responses, to incorporate intertemporal decisions over family labor supply, human capital decisions, intergenerational transfers, etc. It also brings in the firm side, to better understand the trade-off between tax-credits and minimum wages. To what extent are government transfers fully incident on low-income families? To what extent are corporate and capital taxes incident on workers?

(iii) Family formation, assortative mating and intergenerational linkages: How do spousal choices and family investments impact inequality? Men have experienced much of the decline in earnings capacity at the bottom. Assortative mating has increased and implies that the growing education level of women may not mitigate inequality between families, even though it may serve to reduce inequality within families. There is an emerging literature showing the importance of family circumstances, mother’s education, and early years policy interventions for later life outcomes. How do taxes and welfare impact the investments mothers and parents more generally make in the children? How do they interact with education and childcare policy?

(iv) Organizational form and remuneration: To what extent does the tax system impact choice of organizational form – employee, self-employed, incorporated; and on the way income is received – labor income, self-employment income, capital gains, dividend income, etc? This relates directly to the growth of the ‘gig’ economy and matters enormously for the effective design of the tax system across the income distribution, both in terms of measuring incentives correctly and understanding evasion and avoidance.

(v) Taxation and innovation: To what extent does taxation impact innovation and growth? Presumably very high taxation of the returns to innovative activity reduces that activity or at least moves the location of where it occurs. But low levels of taxation may leave the increasingly large incomes from global innovations in very few hands, providing the means for incumbents to erect barriers to entry for new innovators. What seems to be required is a much closer integration between the analysis of tax policy and of competition policy – two fields of economics that too rarely interact.


What advice do you have for emerging scholars in your field?

There is so much to be done. Inequality in its many forms is at the very heart of current political and economic concerns. We can understand little about the economy or politics if we do not understand the different forms that inequality takes, what effects they have, what drives those different forms of inequality, and what policy options might be effective in mitigating either inequality itself or some of its consequences.

There clearly is a need to move on from pure descriptive analyses of economic inequality towards a deeper and more holistic understanding of the drivers of inequality and the appropriate policy responses. However, this should not be done at the expense of detailed measurement. The increasing availability of linked administrative data and population registers holds out an enormous opportunity to make headway on developing dynamic models of inequality based on a strong empirical foundation.

To take this venture forward requires we move towards a laboratory style of research. Young scholars should not be afraid to work together. The groundbreaking ideas of the future will increasingly come from team research, combining expertise in theory, computation, econometric methods, and institutional knowledge with the vast array of emerging new data. Research funders, top journals, the job market, and the system of academic promotions will surely have to adapt to this new paradigm in economic research.