The Joint Committee on Taxation has released Exploring Issues In The Development of Macroeconomic Models for Use in Tax Policy Analysis (JCX-19-06):

The Brookings Institution and the Heritage Foundation invited the staff of the Joint Committee on Taxation to participate in a seminar on June 16, 2006, titled “A Seminar on Dynamic Analysis and a Discussion with the Current and Former Directors of the Congressional Budget Office.” The purpose of the seminar is to present to Congressional staff and other interested persons a discussion of developments in the use of macroeconomic models for the analysis of proposed changes in Federal tax policy.

This document reproduces the prepared remarks of the Joint Committee staff, in the order in which the remarks were delivered at the seminar. Part I of this document reports on work of the Joint Committee staff identifying the sensitivity of reported macroeconomic results to the type of model being used, assumptions about the sizes of behavioral responses and monetary and fiscal policy reactions, and simplifying assumptions with respect to the level of aggregation used in modeling changes in tax policy. This report demonstrates the importance of the level of disaggregation in the calculation of average and marginal tax rates to the outcome of macroeconomic models.

Part II of this document provides a brief history of Joint Committee staff efforts to estimate the macroeconomic effects of tax proposals. It also presents some recent model developments and describes some future developments under consideration by the Joint Committee staff.