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
**The Fiscal Impact Measure (FIM) will be updated when the Commerce Department resumes full publication of economic indicators. These estimates are based on currently available data. **
We are releasing more detail about the FIM with this publication. In particular, we are making available a breakdown of the FIM into the effects of One Big Beautiful Bill Act (OBBBA), tariffs, the government shutdown, and more. See the Fiscal Impact Breakdown spreadsheet in the Downloads section.
Fiscal policy appears to have decreased U.S. GDP growth by 0.2 percentage point in the third quarter of 2025, the Hutchins Center Fiscal Impact Measure (FIM) shows. The FIM illustrates the effect of fiscal policy on real GDP growth. It translates changes in taxes and spending at federal, state, and local levels into changes in aggregate demand. It also includes the supply side effects of fiscal policy and the effects of fiscal policy uncertainty on GDP growth.
The negative forecast for the third quarter reflects boosts from the One Big Beautiful Bill Act (OBBBA) and from the delayed effects of the Inflation Reduction Act on equipment spending offset by the direct effects of tariffs and the effects of uncertainty related to tariffs and other government funding.
We expect fiscal policy to lower GDP growth by 1.5 percentage points in the fourth quarter of 2025, largely reflecting the temporary effects of the government shutdown, which we assume will reduce real GDP in the quarter by 1.5 percentage points. Fiscal policy is projected to boost GDP growth by about 2.8 percentage points in the first quarter of 2026 as delayed federal spending resumes. For the remainder of 2026, as the post-shutdown spending boost gradually dissipates, fiscal policy turns restrictive.
In our forecast period, tariffs and uncertainty lower real GDP growth, while the OBBBA boosts it. The underlying FIM—excluding the supply side effects of recent policies and the effects of the OBBBA, tariffs, and uncertainty—is moderately restrictive in 2026. This is due to weak government purchases—particularly state and local—that more than offset modestly stimulative underlying net transfer payments. (See the Fiscal Impact Breakdown spreadsheet in the Downloads section).
This projection assumes there is no new legislation or economically important executive orders or Supreme Court decisions (for example, with respect to tariffs).
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 legislation and uncertainty as well. 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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