Where economic modeling meets real-world legislation | Penn Today

Where economic modeling meets real-world legislation | Penn Today
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The
Penn Wharton Budget Model
(PWBM) is a nonpartisan, research-based initiative designed to provide accurate and transparent economic analysis of fiscal policy—without advocating for specific political outcomes. Its mission is to help policymakers and the public understand how policy decisions affect the federal budget, the broader economy, and the welfare of American households.
PWBM is the only non-governmental group analyzing how public policy simultaneously affects the federal budget, macroeconomic growth, and human welfare using the rigor of academic research and modeling. The initiative combines academic-quality economic modeling with modern software engineering to scale those models to the complexity of the U.S. economy.
The team includes about 30 economists, data analysts, and software developers who work directly with policymakers and their staff to evaluate the economic consequences of policy proposals. Their analyses often help lawmakers understand how changes to taxes, spending, or other policies might ripple through the economy.
Kent Smetters
, professor of business economics and public policy at the
Wharton School
and faculty director of PWBM, says the model has been involved in analyzing every major piece of fiscal legislation since 2017, including the 2017 Tax Cuts and Jobs Act, COVID-era stimulus payments, infrastructure legislation, One Big Beautiful Bill, and other significant policy proposals. Policymakers on both sides of the political aisle turn to PWBM for analysis because PWBM is known as the honest broker, providing deep analysis without advocacy.
Working with policymakers early
During debates over major legislation, the team frequently provides private analysis for policymakers before bills are introduced publicly. Once legislation is formally proposed, PWBM typically releases detailed public reports explaining its projected economic effects.
PWBM’s work complements that of Congress’s official scorekeepers—the Congressional Budget Office (CBO) and the Joint Committee on Taxation (JCT). While those agencies formally “score” legislation once it has been introduced, PWBM often works earlier in the process.
“CBO and JCT are terrific,” Smetters says. “But their mandate is much wider than ours, so their ability to go deep on a particular issue is sometimes more limited.”
Because PWBM brings together economists, data scientists, and software engineers, it can conduct detailed analysis of major policy areas such as immigration, Social Security, health care, and tax reform.
Answering policymakers’ questions
For lawmakers, understanding the consequences of a policy proposal can be difficult. Many members of Congress do not have the staff or resources to conduct a complex economic analysis on their own.
View large image
Junghoon Lee (left), director of engineering and data at the Penn Wharton Budget Model (PWBM), and Kent Smetters (right). The PWBM is the only non-governmental group analyzing how public policy simultaneously affects the federal budget, macroeconomic growth, and human welfare.
“Our top priority is to be useful to policymakers,” says Alexander Arnon, PWBM’s director of policy analysis. “Policymakers have ideas. They want to understand how this idea is going to affect the economy and the budget.”
Members of Congress frequently approach the model with practical questions: How much revenue would a new tax raise? Who would pay more or less in taxes? How might the change affect economic growth?
Often those questions lead to follow-ups. A policymaker may learn that a proposal raises less revenue than expected, for example, and then ask how the policy might be adjusted to achieve a different goal.
“We can help there too,” Arnon says. “We can help present a range of options to help accomplish the goals you set out.”
Turning legislation into data
Within PWBM, Arnon leads the policy analysis group, which focuses on translating legislation into something that can be analyzed quantitatively. Congressional bills are written in dense legal language that must first be interpreted and mapped into economic concepts.
“If you think about the main thing we’re doing,” Arnon says, “a policymaker puts out a piece of legislation, and legislative text is very hard to parse.”
His team breaks down the bill’s provisions and determines how they affect taxes, spending, or economic incentives. That information is then linked to relevant data sources.
Once the policy details are understood, the analysis moves to PWBM’s macroeconomic modeling team. That group feeds the policy changes into a large-scale economic model designed to simulate how the changes could affect the overall economy and federal budget over time.
Together, the two teams produce estimates of how a policy might affect economic growth, federal revenues and spending, and the distribution of income across households.
Informing the public
Although policymakers are PWBM’s primary audience, the organization also aims to provide clear information to journalists and the public.
Economic trends and fiscal policy debates can be difficult to interpret, especially as new data is released and major legislation moves through Congress. PWBM publishes analyses designed to help explain what those developments mean.
“There’s a lot happening, and it’s complicated,” Arnon says.
Understanding economic data often requires specialized expertise, he adds, particularly when it comes to interpreting trends or evaluating the potential consequences of policy changes.
The pace of PWBM’s work often mirrors the pace of legislative activity in Washington.
“At least on the tax and fiscal policy side,” Arnon says, “when Congress is busy, we are busy, too.”
"The truth is, policymakers get bombarded with poor analysis from third-party advocacy groups," say Smetters. "Yes, we get a lot of media attention, including our analysis being debated in the last presidential and vice presidential debates. But we do not measure success with media citations. We instead ask two questions: First, is our analysis useful to policymakers? Second, is our analysis of quality that is credible with leading academics? PWBM is uniquely positioned to answer yes to both of those questions."
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