The Hutchins Center Fiscal Impact Measure shows how much local, state, and federal tax and spending policy adds to or subtracts from overall economic growth, and provides a near-term forecast of fiscal policies’ effects on economic activity.
FEDERAL, STATE AND LOCAL FISCAL POLICY AND THE ECONOMY
By Sarah Ahmad, Chase Parry, and Louise Sheiner
Fiscal policy decreased U.S. GDP growth by 0.2 percentage point in the second quarter of 2025, the Hutchins Center Fiscal Impact Measure (FIM) shows. The FIM translates changes in taxes and spending at federal, state, and local levels into changes in aggregate demand, illustrating the effect of fiscal policy on real GDP growth. GDP increased at an annual rate of 3.0% in the second quarter of 2025, according to the government’s latest estimate.
The 0.2 percentage point decrease in the second quarter reflects a decline in federal purchases, partially offset by a rise in state purchases. Transfers net of taxes increased the FIM by 0.4 percentage point; we have assumed that uncertainty associated with tariffs lowered GDP growth by an additional 0.3 percentage point.
We expect the FIM to remain negative throughout most of our forecast period (ending in the second quarter of 2027). We estimate that the One Big Beautiful Bill Act boosts GDP by about 0.22 percentage point and 0.31 percentage point in 2025 and 2026 relative to current policy, respectively. Tariffs and policies related to federal grants to universities lower GDP by about ½ percentage point in each year. (In our previous report, we assumed that the 1 percentage point reduction in growth would all take place over four quarters—we now think the effect will unfold more slowly.)
The FIM tracks the influence of fiscal policy on GDP growth rates. It measures the direct impacts of fiscal policy on demand (including both discretionary fiscal policy and automatic stabilizers) and includes our estimates of the supply-side effects of the Inflation Reduction Act and CHIPS Act. It doesn’t include fiscal multipliers. For further analysis on the effects of fiscal policy, read our explainer on the impact of federal, state, and local tax and spending policy on the level of GDP since the onset of the pandemic.
For more on the FIM, see our methodology ». You can also read our Guide to the FIM ».
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