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Hutchins Center Fiscal Impact Measure

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.


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
By Manuel Alcala Kovalski, Sophia Campbell, Tyler Powell, Louise Sheiner

Fiscal policy boosted U.S. GDP growth by 14.5 percentage points at an annual rate in the first quarter of 2021, 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 rose at an annual rate of 6.4% in the first quarter, according to the government’s latest estimate.

The FIM in the first quarter of 2021 was about the same level as in the second quarter of 2020—when the CARES Act was enacted. The substantial boost to economic growth in the first quarter from fiscal policy was largely the result of two rounds of rebate checks (the $600 per person from legislation enacted in December that was paid in January, and the $1,400 per person from the American Recovery Plan Act that was paid in the last few weeks of March). An uptick in purchases by the federal government, reflecting in part spending on vaccines and processing of Paycheck Protection Program loans, also boosted economic activity.

The first quarter reading of the FIM is higher than our previous forecast. In part, this is because more rebate checks were disbursed in the first quarter than we anticipated, offset by lower spending on unemployment insurance as job numbers improved, and a lower increase in federal purchases than anticipated.

Looking forward, we estimate that the FIM will turn negative after the first quarter, restraining economic growth by -4.3 percentage points in the second quarter of 2021 as the effects of rebate checks diminish. Fiscal policy remains a negative factor for growth throughout the remainder of the projection horizon, as the effects of last year’s stimulus wane. Our forecast assumes no additional legislation from Congress in 2021 that could boost GDP growth.

While the overall trajectory of the FIM is clear—a near-term boost to the economy followed by several quarters of restraint—the exact magnitude and timing of the effects are not. As always, we’ve made assumptions about how state and local governments will adjust their spending in response to the increase in federal support as well as other behavioral responses to legislation. For example, the impact of taxes and government transfers on the pace of GDP growth depends on the marginal propensities to consume (MPCs), such as how much households spend versus how much they save from the $1,400 per person checks included in the recent fiscal package.

For more on the FIM, see our methodology ». You can also read our Guide to the FIM ».
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