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, Georgia Nabors, and Louise Sheiner
Fiscal policy increased U.S. GDP growth by 0.4 percentage point in the fourth quarter of 2024, 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 2.4% in the fourth quarter of 2024, according to the government’s latest estimate.
The 0.4 percentage point increase in the fourth quarter was largely the result of slightly stimulative taxes and transfers. We expect the FIM to turn negative in the next quarter and remain so through the end of our forecast period (the fourth quarter of 2026), largely driven by weak growth in federal and state purchases and only partially offset by strong growth in net transfers.
This projection assumes that the provisions of the 2017 Tax Cuts and Jobs Act that are set to expire at the end of 2025 are extended. Without this assumption, the FIM would be more negative in 2026. This projection does not reflect any other future legislation, nor does it account for the impact of tariffs, tariff uncertainty, or any of President Trump’s executive orders.
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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