The Hierarchy of Modelling Techniques

Abstract

Economic simulation models—of which tax models form a subgroup—can be established at various levels of aggregation. They can be extremely simple and they may achieve high levels of specification and sophistication. In essence, even a crude ‘back-of-the-envelope’ calculation could be considered a model. However, this would not suit well for simulation purposes because it cannot account for more complex relationships, and it does not allow the timely updating and repetitive analysis of any data relevant for a simulation exercise. The same is true for simple arithmetic operations performed manually on a desk calculator.