The Transformation of Public Policy Analysis in Times of Crisis – A Microsimulation-Nowcasting Method Using Big Data

Cathal O'Donoghue and Denisa Sologon

No 15937, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: The urgency of the two crises, especially the COVID-19 pandemic, revealed the inadequacy of traditional statistical datasets and models to provide a timely support to the decision-making process in times of volatility. Drawing upon advances in data analytics for public policy and the increasing availability of real-time data, we develop and evaluate a method for real-time policy evaluations of tax and social protection policies. Our method goes beyond the state-of-the-art by implementing an aligned or calibrated microsimulation approach to generate a counterfactual income distribution as a function of more timely external data than the underlying income survey. We evaluate the simulation performance between our approach and the transition matrix approach by undertaking a nowcast for a historical crisis, judging against an actual change and each other. Nowcasting emerges as a useful methodology for examining up-to-date statistics on labour force participation, income distribution, prices, and income inequality. We find significant differences between approaches when the calibration involves structural heterogenous changes. The model replicates the changes in income distribution over one year; over the longer term, the model is able to capture the trend, but the precision of the levels weakens the further we get from the estimation year.

Keywords: big data; policy analysis; nowcasting; microsimulation; COVID-19 (search for similar items in EconPapers)
JEL-codes: C54 I31 I38 (search for similar items in EconPapers)
Pages: 38 pages
Date: 2023-02
New Economics Papers: this item is included in nep-big, nep-cmp and nep-lma
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://docs.iza.org/dp15937.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:iza:izadps:dp15937

Ordering information: This working paper can be ordered from
IZA, Margard Ody, P.O. Box 7240, D-53072 Bonn, Germany

Access Statistics for this paper

More papers in IZA Discussion Papers from Institute of Labor Economics (IZA) IZA, P.O. Box 7240, D-53072 Bonn, Germany. Contact information at EDIRC.
Bibliographic data for series maintained by Holger Hinte ().