The Penn Wharton Budget Model

The Penn Wharton Budget Model (PWBM) is an applied research organization that does not advocate for any particular policy. Besides being non-partisan, we are non-normative, in that we do not make policy recommendations. Instead, the intention of the PWBM is to be the honest broker of analysis working at the intersection of business and policy to help policy makers, the public, and businesses make fact-based decisions.

The federal budget is one of the most important documents produced by our government and provides a roadmap for our nation’s priorities. However, there is currently a limited opportunity for policymakers to understand how a policy change will impact our nation’s economy and budget while they are writing legislation. Our intention is not to compete with the government’s official scoring agencies. Rather, we want our analysis to help inform policy discussions before bills are finalized and before lobbying and reputational stakes are put into the ground. Our analysis can also help policymakers in their subsequent discussions with official scorekeepers.

The PWBM combines modern advances in economic modeling, big data science, cloud computing and visualization tools to provide a “sandbox” in which different policy ideas can be tested before legislation is drafted. Our tools are transparent and accessible to all, so that policymakers, members of the media and the general public can test their own ideas.

More specifically, the PWBM models households at an individual level and uses what is known as a “stochastic simulation.” Hundreds of thousands of individuals, across a wide range of population subgroups, are calibrated to Census-level data. Using a variety of additional large government data sets, households are assigned key economic attributes including, fertility, mortality, immigration, labor-force participation rates, education, marriage, divorce, capital, disabilities, and earnings. Households are then subject to various life events: They grow up, go to school, get married, potentially divorce, get jobs, pay taxes, and eventually retire and receive Social Security benefits. The PWBM takes into account changes over time, such as demographic and economic shifts. The dynamic version of the model uses fewer representative households, to reduce computation costs, but it then allows households to change several key attributes in response to a change in policy, including their labor supply and capital holdings. These changes then impact the economy, economic growth, and the distribution of income over time. Cloud computing is then used to runs hundreds or even thousands of different policy combinations ahead of time, so that the “sandbox user” gets instant, visual feedback.

Phase One of the PWBM includes the capability to test policies specific to immigration and Social Security. Tax reform will launch later in September, 2016. Over time, we will provide additional tools to analyze healthcare, housing finance, retirement policy, aggregate risk management, education, criminal justice, and regulation.

For more information, download a short overview PDF here. Or, check out our Frequently Asked Questions.

For more information about the budget models, see the White Papers