One of my favorite TV characters is Tim “the tool man” Taylor, and one of his great loves was new power tools. We can all remember the grunts of joy when a new tool passed through his hands. Invariably, he would use the tool incorrectly or overbuild something with the new tool—a lawnmower with 500 HP, for instance. For the last 20 years, RESI has undertaken numerous economic and fiscal impact models for federal, state, and local government as well as the private sector—by my last count, well over 100 studies. In each study, we used IMPLAN, a wonderful static input-output modeling tool. This past year, RESI has begun to use REMI PI+, a dynamic input-output modeling tool, for our economic and fiscal impact projects. REMI allows us to conduct dynamic economic and fiscal policy analysis. Cue manly grunt of joy.
What are the benefits of dynamic analysis?
Dynamic economic and fiscal policy analysis has been around since the early 90s and is currently used by state and federal governments to determine future policy impacts. The benefit to the dynamic aspect of analysis is the ability to estimate the compounding effect of a one-time shock over years. Traditional static analysis models are good for single-time projects, but to determine the impact of an Earned Income Tax Credit, the better method would be to create a dynamic forecast with a tool such as REMI.
For example, suppose a state government is considering a tax credit for renewable energy generation. The transactions of private firms taking advantage of this credit are ultimately weaved throughout the economy in the traditional “business cycle.” Think of a static model as providing an HD photograph of this tax change, a snapshot of the tax policy. The jobs, wages, and output derived from that shock are applicable to that specific period in a static model. The model can be used in a “create and support” situation, but to see the impacts of this tax policy over multiple periods, a dynamic model is more suitable.
How can a dynamic model show the impacts of tax policy?
Think of a dynamic model like REMI as providing policymakers with an SD video of the tax change, as compared to the HD photograph that IMPLAN will provide. Economists can review the change from the baseline caused by the shock and see how the economy shifts through consumption pattern and price changes. Therefore, if the policy created 400 direct jobs and 20 indirect jobs, the impact of those jobs and wages throughout time may add up to more than 420 jobs. States such as Minnesota have used REMI in the past to forecast the potential impacts from their Green Solutions Act on their economy.
RESI looks forward to the new detailed and dynamic forecasting we can now offer our clients with REMI. It’s a shiny, new tool, and our team is ready to put it to work!