Finance scholar Chetty named professor of economics

Raj Chetty, a public economist whose work focuses on social insurance and tax policy, has been appointed professor of economics in Harvard University’s Faculty of Arts and Sciences (FAS), effective April 1.

Chetty, 29, was previously professor of economics at the University of California, Berkeley.

“Raj Chetty is a distinguished scholar who has made significant contributions to the study of public finance, social insurance, and taxation,” says Stephen Kosslyn, dean of social science in FAS. “These are areas of immense importance right now, and he will be a great asset to the Department of Economics. Without question his work will be of continuing relevance in our current economic landscape.”

Chetty has published papers in leading journals on a range of topics related to government policy. One recent study focuses on the Earned Income Tax Credit (EITC), a $50 billion program that gives low-income individuals in the United States cash subsidies to work more. Because the program is very complex, many individuals do not know that increasing their earnings will increase the amount of money they get from the government.

Chetty ran a randomized experiment providing simple information about the incentives created by the EITC to 40,000 EITC claimants in Chicago. The experiment showed that providing simple information substantially magnified the effects of the program on subsequent work decisions and reduced poverty rates. Traditional economic theories ignore the importance of imparting information, and Chetty has developed new models of tax policy that will allow economists to take the lack of communication into account in order to design better policies.

Chetty has also studied the effects of risk on households and their implications for optimal social welfare policy. He has shown that an individual’s spending commitments, such as mortgage payments, affect his or her risk aversion, and make the optimal size of government welfare programs much larger than existing theories predict. His research has also demonstrated that unemployment benefits have beneficial effects by permitting individuals who could not otherwise afford to remain out of work to take more time to find a suitable job.

Chetty is co-director of the Public Economics Program at the National Bureau of Economic Research and editor of the Journal of Public Economics. He has been awarded three National Science Foundation grants for his research, including a CAREER award, the NSF’s most prestigious grant for young researchers. He was named one of the best young economists of the past decade by The Economist magazine. Most recently, he was awarded the 2008 American Young Economist award and an Alfred P. Sloan Research Fellowship.

Chetty received his A.B. in 2000 and his Ph.D. in economics in 2003, both from Harvard.