One of the strengths of the REFORM model is that it is relatively simple to use and can be easily adjusted to fit the requirements of the user so that it is tailored to analyse a given policy. Despite its simplicity, the model has a high level of detail in relation to taxes. The simplicity and detail that the model provides has attracted many institutions to use the model instead of using complex models that require specialists to operate.
One of the users of the model is the Ministry of Finance. The Ministry of Finance has the responsibility of quantifying the effects of potential new legislation on GDP, for example, if the effect on GDP is evaluated to be larger than 100 million kroner or if the direct economic impact is greater than 50 million kroner. Under most cases, the REFORM model is used by the Ministry of Finance as their tool for evaluating the effects on real GDP to see how the political initiative in question affects economic productivity.
The estimated GDP effects must be reported in the draft bill when submitted to parliament. In addition to informing politicians of GDP effects of new legislation, the estimates also include the GDP effects of the business-oriented initiatives that are in discussed in the government’s budgeting committees or in the context of political negotiations. This means that the model is often run several times a week in the Ministry of Finance. As such, the ministry works closely with our team to continually update and validate the assumptions made by the model.
The Finance ministry runs the REFORM model with 73 branches of industry as its baseline model to calculate effects on GDP. The model is calculated for a large variety of potential political initiatives which range sector specific regulation to requirements or easing of regulation that can affect many sectors in the economy. There are many possible methods for shaping these counterfactual experiments in the model, but typically the effects on GDP are calculated by changing labour force productivity, factor productivity or tax rates.