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 third 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 2.8% in the third quarter of 2024, according to the government’s latest estimate.
Weak tax collections boosted the FIM by 0.1 percentage point in the third quarter. The combined effects of federal and state purchases increased the FIM by 0.5 percentage point, reflecting a surge in federal defense purchases partially offset by a decline in state and local purchases. The waning effects of pandemic-era transfers and subsidies decreased the FIM by 0.2 percentage point in the third quarter; these effects will remain negative in 2025 and 2026.
We expect the FIM to be modestly negative in the next quarter and through the end of our forecast period in the third quarter of 2026. 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.
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 also includes our estimates of the supply-side effects of the Inflation Reduction Act and CHIPS and Science Act. It doesn’t include fiscal multipliers. For an analysis that includes multipliers, as well as a more detailed breakdown of the components of the FIM, read our explainer on how pandemic-era fiscal policy affects the level of GDP, which includes a comparison of actual GDP with our estimate of what GDP might have been had fiscal policy failed to respond to the pandemic.»
For more on the FIM, see our methodology ». You can also read our Guide to the FIM ».
