Economic modelling: Dynamic vs Static

Dynamic and static economic forecast models interpret the effects of changes in policy differently. Static models tend to only consider the direct effects of a policy change, with little attention given to how policies may alter the broader economic environment. In contrast, dynamic models attempt to capture indirect effects by incorporating behaviour change, such as investment or consumption decisions. Dynamic models give a more complete picture of the economic effects of policy changes.

Why do we need a new model?

Static modelling assumes that every tax rise generates income for government and any tax cut will cost public services money.

Dynamic modelling assesses the behaviour changes and investment changes that happen when you change the tax and regulatory system.