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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 THIRD QUARTER UPDATE, 11/29/17
By Louise Sheiner and Sage Belz

The combined effect of federal, state and local spending and tax policies —which significantly restrained overall economic growth from 2011 through 2014— had little effect on growth in Gross Domestic Product in the third quarter of 2017, the latest reading on the Hutchins’ Fiscal Impact Measure shows.

Persistent weakness in state and local spending offset the modest contributions of federal spending to GDP in the third quarter. Worries about unfunded pension liabilities and weaker than expected tax revenues this year appear to be restraining state and local spending on both current operations and infrastructure.

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. The GDP grew at a 3.3 percent annual rate in the third quarter, according to the government’s second estimate.

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

  • Federal spending increased at an annual rate of 1.3 percent this quarter, but increased just 3/10 percentage point over the past year. Caps on discretionary spending agreed to by Congress have kept spending growth well below GDP growth.
  • Spending by state and local governments edged down in the third quarter, a sixth consecutive quarter of negative or very weak growth. The sector has yet to fully recover from the Great Recession: state and local employment remains almost 1 percent lower than it was in 2008, and inflation-adjusted construction spending is 30 percent lower. Growing pension obligations and negative revenue surprises have pushed states and localities to restrict budgets. Pension contributions as a share of payroll, for example, have increased almost 6 percentage points since 2008.
  • Consistent with the pattern observed over the last year, tax and transfer policies had little effect on GDP this quarter, reflecting the lack of major legislative changes at either the federal or state and local levels.

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