The Policy Growth Model is one in a suite of models that CBO uses to analyze how economic growth and the federal budget interact.
The Policy Growth Model (PGM) is one in a suite of models that the Congressional Budget Office uses to analyze how economic growth and the federal budget interact:
- How estimates of economic growth affect projections of federal budget variables, such as spending, tax rates, and deficits.
- For example, more rapid growth of productivity leads to higher incomes and tax revenues.
- How changes in those federal budget variables, in turn, affect economic growth.
- For example, increased marginal tax rates on labor income lead households to reduce their hours worked on net, lowering economic growth.
- By contrast, reduced federal deficits lead to lower interest rates and, therefore, more private investment, boosting economic growth.