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
**The Fiscal Impact Measure will be updated when the government shutdown ends and the Commerce Department resumes publication of economic indicators. These estimates are based on the available data.**
Fiscal policy appears to have had a mostly neutral effect on U.S. GDP growth in the third quarter of 2025, lowering growth by less than 0.1 percentage point, the Hutchins Center Fiscal Impact Measure (FIM) shows. The FIM illustrates the effect of fiscal policy on real GDP growth. It translates changes in taxes and spending at federal, state, and local levels into changes in aggregate demand. It also includes the supply side effects of fiscal policy and the effects of fiscal policy uncertainty on GDP growth.
The neutral forecast for the third quarter reflects boosts from the One Big Beautiful Bill Act (OBBBA) and from the delayed effects of the Inflation Reduction Act on equipment spending offset by the direct effects of tariffs and the effects of uncertainty related to tariffs and other government funding.
We expect fiscal policy to lower GDP growth by 1.4 percentage points in the fourth quarter of 2025, largely reflecting the temporary effects of the government shutdown, which we assume will last six weeks in total and reduce real GDP in the quarter by 1.5 percentage points. Fiscal policy is projected to boost GDP growth by about 2 percentage points in the first quarter of 2026, as the government reopens. In both 2025 Q4 and 2026 Q1, tariffs and uncertainty lower real GDP growth, while the OBBBA boosts it.
Fiscal policy is expected to be roughly neutral over the remainder of 2026, again reflecting the offsetting positive effects of the OBBBA and tariffs and uncertainty on GDP growth. The underlying FIM—excluding the supply side effects of recent policies and the effects of the OBBBA, tariffs, and uncertainty—is moderately restrictive in 2026. This owes to weak government purchases—particularly state and local—that more than offset modestly stimulative underlying net transfer payments. For a detailed breakdown of the subcomponents of the FIM, including our estimates of supply side, OBBBA, tariffs, and tariff uncertainty effects, see the Fiscal Impact Breakdown spreadsheet in the Downloads section.
This projection assumes that the ACA subsidies are extended as part of resolution of the shutdown resolution, but doesn’t assume any other new legislation or economically important executive orders or Supreme Court decisions (for example, with respect to tariffs).
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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