New in FIT: Vesa-Matti Heikkuri

I am Vesa-Matti Heikkuri, and I joined the Finnish Centre of Excellence in Tax Systems Research (FIT) at Tampere University as a postdoctoral research fellow in September 2023. Before starting at FIT, I was a graduate student at Brown University in the United States. I am excited to return to Finland after six years abroad and to start my postdoctoral academic career here.

In my research, I focus on both the empirics and the theory of economic inequality. In one of the papers included in my dissertation, me and my co-author Matthias Schief study how population aging and cohort replacement have shaped the evolution of income inequality in the United States. A common finding in the literature is that older households tend to be more unequal in their incomes. In addition, we document that recent birth cohorts have more unequally distributed income-relevant characteristics compared to earlier cohorts. Hence, income inequality is expected to increase as demographic change increases the share of older households and the more recent birth cohorts grow older. Using a statistical model to simulate the effect of demographic change on income distribution, we find that these demographic processes have substantially increased income inequality in the United States in the past two decades. We also use population projections to predict that future demographic change will put upward pressure on income inequality in the coming decades.

In a more theoretical paper, I study subgroup decomposition of inequality indices. The task of subgroup decomposition is to quantify to what extent observed inequality is due to inequality within subgroups of the population versus differences across subgroup distributions. For example, we can ask how much income inequality in a population reflects inequality among young people and among older people versus how much inequality reflects young people having a lower average income compared to older people. Subgroup decompositions have also been used to study regional inequality, gender inequality, and racial inequality.

The Gini coefficient is the most well-known measure of inequality. By going to almost any country’s Wikipedia page, you will find the Gini coefficient of that country’s income distribution. The biggest drawback of the Gini coefficient, however, is that there is no consensus on how to decompose it into within-group inequality and between-group inequality. In the paper, we propose a new theory for subgroup decomposition of inequality indices and show that there is a unique satisfactory way to decompose the Gini coefficient under this framework.

More generally, I am trying to understand the increase in income and wealth inequality experienced in most developed countries over the recent decades and why this increase has not been uniform across countries. Other topics I am interested in include social mobility and the macroeconomic effects of demographic change. I think FIT and Tampere University provide a fitting environment to continue this work.

Pictures:

Photo of Vesa-Matti Heikkuri: Jonne Renvall

Photo of Brown University campus: Kenneth C. Zirkel, Wikimedia Commons. See license: File:Brown University Pembroke campus.jpg – Wikimedia Commons

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