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Hutchins Center Fiscal Impact Measure

The Hutchins Center Fiscal Impact Measure shows how much fiscal policy adds to or subtracts from overall economic growth. Use the graph below to explore the total quarterly fiscal impact as well as its components: taxes and spending at the federal, state and local levels. (Methodology »)

 

Hutchins Center Fiscal Impact Measure Contribution of Fiscal Policy to Real GDP Growth Components of Fiscal Policy Contribution to Real GDP Growth

  • Four-quarter moving average
  • Quarterly fiscal impact
  • Federal spending on goods and services
  • State and local spending on goods and services
  • Taxes and benefit programs

Source: Hutchins Center calculations from Bureau of Economic Analysis data.

Hutchins Center on Fiscal & Monetary Policy

TAKEAWAYS FROM THE FIRST QUARTER UPDATE

By Louise Sheiner and David Wessel

The spending and tax policies of federal, state, and local governments—which significantly restrained overall economic growth from 2011 through 2014—had little effect on growth in Gross Domestic Product in the first quarter of 2017, according to the latest reading on the Hutchins’ Fiscal Impact Measure. (The GDP grew at a 1.2 percent annual rate in the quarter, according to the government’s revised estimate.)

Smoothing through quarterly ups and downs, the Hutchins’ FIM has been hovering near zero over the past year, suggesting that, on balance, local, state and federal fiscal policies have neither subtracted from nor added to the change in GDP domestic product.

A few highlights from the most recent update to the FIM:

• State and local spending fell slightly in the first quarter, and has declined on average over the past year, suggesting that state and local governments continue to face pressures to rein in spending. State and local construction spending, which fell sharply during the great recession, remains well below pre-recession levels; state and local employment also remains somewhat below pre-recession levels.

• Federal spending also continues to be quite muted—particularly in defense—consistent with the caps on discretionary spending agreed to by Congress.

• Tax and transfer policies have had little effect on GDP growth over the past year, reflecting the fact that there have been no major legislative changes at either the federal or state and local levels. If the Trump administration and Congress agree on major tax cuts or on increases or decreases in federal spending, the FIM will provide a gauge of their near-term effects on GDP growth.

• The FIM illustrates the combined effect of local, state and, particularly, federal fiscal policy from 2008 through 2010—the Great Recession and the ensuing slow recovery—added substantially to GDP growth, in part because of the American Recovery and Reinvestment Act, the fiscal stimulus of the Obama administration. The FIM peaked at 3.04 in the second quarter of 2009, adding more than three percentage points to GDP growth. But belt-tightening from 2011 through 2014, government subtracted from overall economic growth. The FIM fell below zero for several quarters in a row.

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