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 0.6 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 3.8% in the second quarter of 2025, according to the government’s latest estimate.
The negative 0.6 percentage point second quarter reading reflects a decline in real federal purchases—partially offset by a rise in real state purchases—and the effects of tariff uncertainty on output, which we assume lowered GDP growth by 0.3 percentage point. Transfers net of taxes increased the FIM by less than 0.1 percentage point.
Looking forward, we expect the FIM to be roughly neutral over the second half of 2025, and to average negative 0.1 percentage point in 2026, reflecting a combination of the effects of tariffs and the uncertainty surrounding them, the One Big Beautiful Bill Act (which boosts GDP by about 0.4 percentage point over the remainder of this year and 0.3 percentage point in 2026), and generally weak federal and state and local purchases.
This projection assumes no new legislation or economically important executive orders or Supreme Court decisions (for example, with respect to tariffs) and assumes that Congress funds the operations of the government before the fiscal year ends on Sept. 30. We have not revised our projection of tariff revenues to account for the most recent tariff announcements.
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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