Forecasting the economic impact of new policies

Abstract

PurposeOnce a policy proposed by the European Commission is approved by European Parliament or Council, its implementation strategy is the responsibility of the member states. Often, there will be several parallel strategies shaped by a series of incentives financed by the government and naturally, the aim is to choose the most cost effective one. For strategy and planning as well as budgeting purposes, forecasts of the adoption rate of these policy implementation strategies will be an indicator as to their effectiveness. A new hybrid approach combining structured analogies and econometric modelling is proposed for producing such forecasts.Design/methodology/approachWith every different policy, there will be different qualitative and quantitative data available for producing such implementation strategy adoption rate forecasts. Hence, the proposed hybrid approach, which combines the strengths and reduces the weaknesses of each of its constituents, can be adjusted to match the quantity and nature of the available data.FindingsThis paper reveals a lack of emphasis on such a forecasting application in the existing literature, while stressing its importance to governmental decision makers. What is more, the paper reveals a lack of documentation of this forecasting process in large governmental structures.Practical implicationsIf shown to improve the ability to produce such forecasts, the proposed approach could be very beneficial to decision makers when faced with several possible implementation strategies.Originality/valueThe use of expertise is quite common in forecasting policy impact but in an unstructured way. The advanced model proposes structuring the use of analogies in an objective manner. Furthermore, combining with econometric modelling, the incorporation of valuable quantitative information is made possible.