Markets network member Dirk Krueger spoke with HCEO about his research on economic policy reforms and their subsequent macroecomic distributional consequences.

Krueger says that his two main strands of research, studying what shapes income, wealth, and consumption distribution in modern economies, and major economic policy reform, have merged in recent years. Early on in his career, he focused on Social Security reform, but now is interested in major tax reform and health care reform. "Partially because that's where the most pressing reform needs in modern societies are," he says.

Much of Krueger's work investigates the dramatic changes in income distribution that have taken place in the U.S. in the past 10 years. He notes that wealth and income have become much more concentrated for the top 20 percent. "That begs the question, how high should we tax people at the high end of the income distribution - when we are interested in maximizing revenue but also interested in maximizing social welfare?"

Crucial to this work are administrative data sets providing demographic information on these top earners, which have only recently become available. "You would hope that you have a fairly accurate data picture of what these top 1 percent of people actually look like," Krueger says. "And up until recently we didn't." He notes that the income data, as well as improved computing capabilities, makes this area of research a very fruitful one for graduate students. 

While our understanding of wealth distribution has improved, Krueger also stresses that there is still plenty to learn. For instance, he says that there is much research on the impact of economic policies, but there is far less on how wealth affects policy from a political perspective. "How is policy actually formed in the political process, and how is that affected by income and wealth distribution? For example, in unequal societies, do we get bad policy outcomes?" he asks. "That's where the literature I think should be going."

Krueger is a Professor of Economics at the University of Pennsylvania and a Research Associate at the National Bureau of Economic Research and at Penn's Population Studies Center.