Microsimulation

Learn ▼

How PolicyEngine's tax and benefit models work

AI & ML API Microsimulation Benefit Access Educational Use Open Source

Tax-Benefit Microsimulation

PolicyEngine uses microsimulation models to analyze the impact of policy reforms on real households

What is Microsimulation?

Microsimulation is a computational technique used to estimate the effects of policy changes on individuals, households, or other microeconomic units. Unlike macroeconomic models that focus on aggregate variables, microsimulation models:

Apply tax and benefit rules to representative samples of the population
Calculate outcomes for each household based on their unique characteristics
Aggregate results to estimate population-wide impacts
Allow for detailed distributional analysis by income, demographic groups, and more

PolicyEngine's microsimulation models implement tax and benefit systems as code, allowing users to modify parameters and see how changes affect different households and the overall population.

How PolicyEngine's Models Work

Open-Source Foundation

PolicyEngine builds on OpenFisca, an open-source microsimulation framework developed by the French government. Our models implement tax and benefit rules as code, creating a computational representation of current policy and allowing for modifications to explore reform impacts.

Data-Driven Approach

Our models use nationally representative household surveys enhanced with administrative data to create accurate population samples:

UK: Family Resources Survey with custom survey weights
US: Enhanced Current Population Survey with synthetic tax records

Machine Learning Enhancement

We apply machine learning techniques to optimize our population samples:

Gradient descent algorithms to calibrate survey weights to match administrative totals
Quantile regression forests to synthesize missing tax information for US data
Statistical validation against administrative benchmarks

Model Accuracy and Validation

PolicyEngine continuously validates our models against administrative data to ensure accuracy:

Aggregate tax and benefit totals compared to government budget figures
Distributional impacts validated against administrative statistics
Tax and benefit calculators tested against official examples
Ongoing calibration to match the latest data from government sources

Our UK model has achieved up to 80% lower aggregate error rates compared to standard survey-based approaches, and our US Enhanced CPS represents a significant improvement over public microdata for tax modeling.

Technical Documentation

US Model Documentation

Technical details about the US Enhanced Current Population Survey (ECPS), tax and benefit calculators, and validation methodology.

Enhanced CPS Documentation →

UK Model Validation

Detailed information about the UK tax and benefit model, including data sources, calibration methodology, and validation results.

UK Model Validation →

GitHub Repositories

Access our open-source code repositories for all PolicyEngine models, including tax-benefit rules, data processing pipelines, and web interface.

PolicyEngine on GitHub →

Subscribe to PolicyEngine

Get the latests posts delivered right to your inbox.